The Audit Plan – template user guide
Contents
1. Grant Thornton The Audit Plan for Cheshire Fire Authority This version of the report is a draft Its contents and subject matter remain under review and its contents may change and be expanded as part of the finalisation of the report Year ended 31 March 2013 April 2013 Julian Farmer Engagement Lead T 01612346385 E Julian d farmer uk gt com Alan Rawling Manager T 01612146374 E alan j rawling uk gt com The contents of this report relate only to the matters which have come to our attention which we believe need to be reported to you as part of our audit process It is not a comprehensive record of all the relevant matters which may be subject to change and in particular we cannot be held responsible to you for reporting all of the risks which may affect the Authority or any weaknesses in your internal controls This report has been prepared solely for your benefit and should not be quoted in whole or in part without our prior written consent We do not accept any responsibility for any loss occasioned to any third party acting or refraining from acting on the basis of the content of this report as this report was not prepared for nor intended for any other purpose Contents Section Understanding your business Developments relevant to your business and the audit Our audit approach An audit focused on risks Significant risks identified Other risks Results of interim work Value for Money Logist2. submission requirements for your WGA pack 2013 Grant Thornton UK LLP Framework published in July 2012 New Statement of assurance to be published annually We will assess the impact of new policy developments including the new assurance statement at our regular meetings with senior management We will provide a view where appropriate Statement AGS e Explanatory foreword We will review the arrangements the Authority has in place for the production of the AGS We will review the AGS and the explanatory foreword to consider whether they are consistent with our knowledge announced the broad thrust of its response to the Hutton Report and the changes it plans to make to fire fighters pensions from 2013 14 e There are changes in 2013 14 to the Local Government Pension Scheme LGPS e We will assess how the Authority is planning to deal with the impact of the pension scheme changes through our meetings with senior management Spending Review means reduction in Fire spending with the changes back loaded Operational efficiency review of the fire service due to report Spring 2013 We will review the Authority s performance against the 2012 13 budget including consideration of performance against the savings plan Our VFM conclusion will include an assessment of the Authority s financial resilience We will assess the Authority s response to the Operational efficiency review with senior mana
3. prescribed and locally determined work Our work considers the Authority s key risks when reaching our conclusions under the Code It is the responsibility of the Authority to ensure that proper arrangements are in place for the conduct of its business and that public money is safeguarded and properly accounted for We have considered how the Authority is fulfilling these responsibilities 2013 Grant Thornton UK LLP Audit Audit Our communication plan plan findings Respective responsibilities of auditor and management those charged v with governance Overview of the planned scope and timing of the audit Form timing v and expected general content of communications Views about the qualitative aspects of the entity s accounting and v financial reporting practices significant matters and issue arising during the audit and written representations that have been sought Confirmation of independence and objectivity A statement that we have complied with relevant ethical requirements regarding independence relationships and other matters which might be thought to bear on independence Details of non audit work performed by Grant Thornton UK LLP and network firms together with fees charged Details of safeguards applied to threats to independence Material weaknesses in internal control identified during the audit RS Identification or suspicion of fraud involving management and or others which results in material misstate
4. relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 Other reasonably possible risks Operating expenses Operating expenses Employee remuneration Firefighters pensions Description Operating expenses understated Creditors understated or not recorded in the correct period Remuneration expenses not correct Payments to pensioners incorrectly calculated 2013 Grant Thornton UK LLP Work completed to date e Documentation of processes and controls Evaluation and walkthrough of controls Documentation of processes and controls Evaluation and walkthrough of controls Documentation of processes and controls Evaluation and walkthrough of controls Documentation of processes and controls Evaluation and walkthrough of controls Further work planned Selection of a sample of expenditure items for substantive testing Selection of a sample of expenditure items for substantive testing Detailed review and testing of year end accruals and creditor balances Possible testing of key controls Selection of a sample of expenditure items for substantive testing Substantive testing of payments made to pensioners Results of interim audit work Scope As part of the interi
5. ars We would expect local authorities to consider whether they have received any additional claims and where the criteria set out in IAS 37 have been met recognise a provision e Redundancy costs the recognition point for termination benefits fall under IAS 19 Employee Benefits This is generally earlier than the IAS 37 recognition criteria for restructuring which requires that a valid expectation has been raised in those affected The requirement in IAS 19 is that the entity is demonstrably committed Questions for members to consider Has your Head of Finance considered the need for additional provisions for the above matters 2013 Grant Thornton UK LLP Emerging issues and developments Grant Thornton reports Towards a tipping point Summary findings from our second year of financial health checks of English local authorities In December 2012 Grant Thornton published Towards a tipping point Summary findings from our second year of financial health checks of English local authorities Although this report was produced on the basis of information from local authorities the messages in this report are still relevant to you This financial health review considers key indicators of financial performance financial governance strategic financial planning and financial controls to provide a summary update on how the sector is coping with the service and financial challenges faced The report provides a summary o
6. ed services Collaboration with emergency services and other organisations on service delivery and estates e Sickness management Sharing of senior staff e Locally led mergers and operational collaborations e New Fire fighting technology Preventative approaches e Working with local businesses Fire and rescue authorities have been invited to put forward their views Challenge questions Are your officers going to contribute to the operational efficiencies review 2013 Grant Thornton UK LLP Grant Thornton 2013 Grant Thornton UK LLP All rights reserved Grant Thornton means Grant Thornton UK LLP a limited liability partnership Grant Thornton is a member firm of Grant Thornton International Ltd Grant Thornton International References to Grant Thornton are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms as the context requires Grant Thornton International and the member firms are not a worldwide partnership Services are delivered independently by member firms which are not responsible for the services or activities of one another Grant Thornton International does not provide services to clients grant thornton co uk
7. es in this report are still relevant to you It finds that local government bodies are targeting their investigative resources more efficiently and effectively Local government bodies detected more than 124 000 cases of fraud in 2011 12 totalling 179m It also reports that new frauds are emerging in areas such as business rates Right to Buy housing discounts and schools The report includes a checklist for those charged with governance to use to review their counter fraud arrangements Questions for members to consider Have you considered the findings of the report Are there any issues that could relate to your authority and how are these being dealt with e Have you reviewed your existing arrangements for tackling fraud If you have any fraud queries talk to your audit manager to see how Grant Thornton could help Emerging issues and developments Local government guidance Operational efficiencies review During January to March 2013 there is to be a review into the operational efficiency of the services delivered by fire and rescue authorities in England by Sir Ken Knight the outgoing Chief Fire and Rescue Adviser A final report is to be presented to Ministers in Spring 2013 The review will look at options for savings both within and beyond the current Spending Review period including through e Firefighter training e Flexible staffing and crewing arrangements The use of retained firefighters e Procurement e Shar
8. f the key issues trends and good practice emerging from the review Questions for members to consider e Have you considered the findings of the report Are there any issues that relate to your authority and what action are you going to take 2013 Grant Thornton UK LLP Emerging issues and developments Local government guidance Tough Times Councils financial health in challenging times In November the Audit Commission published Tough times 2012 Councils financial health in challenging times This is the second report it has produced looking at how councils are dealing with the issues from the Spending Review and focuses on the financial health of councils Although this report was produced on the basis of information from local authorities the messages in this report are still relevant to you The report finds that councils generally delivered on their planned savings however auditors reported that signs of financial stress were visible Questions for members to consider e Have you considered the findings of the report and any actions required Protecting the public purse 2012 In November the Audit Commission published Protecting the public purse 2012 Fighting fraud against local government The report provides the results of the Audit Commission s annual survey of English local government bodies Although this report was produced on the basis of information from local authorities the messag
9. gement once the report is published Our audit approach T a Understanding and the entity gt Understanding the business a Understanding _ managements focus gt Evaluating the year s results Voyager 2013 Grant Thornton UK LLP the environment Creates and tailors audit programs Global audit technology Inherent Develop audit plan to risks obtain reasonable assurance that the Financial Statements ak as a whole are free Significant from material risks misstatement and gt prepared in all material respects Other with the CIPFA Code risks of Practice framework using our global methodology and audit software Material balances Note a An item would be considered material to the financial statements if through its omission or non disclosure the financial statements would no longer show a true and fair view Stores audit evidence Ensures compliance with International Standards on Auditing ISAs Devise audit strategy planned control reliance Extract your data y e Test controls e Substantive analytical review e Tests of detail General audit procedures Financial statements Y e Test of detail Anal d e Substantive Report output nalyse data BETETE using relevant i to teams review parameters Conclude and report Documents processes and controls An audit focused on risks We undertake a risk based audit whereby
10. he audit whilst The Audit Findings will be issued prior to approval of the financial statements and will present key issues and other matters arising from the audit together with an explanation as to how these have been resolved We will communicate any adverse or unexpected findings affecting the audit on a timely basis either informally or via a report to the Authority Appendix A provides the Authority with a summary of emerging national issues and developments that may be relevant to you as an Authority The summary includes a number of challenge questions in respect of these emerging issues which you may wish to consider Members can find further useful material on our website www grant thornton co uk where we have a section dedicated to our work in the public sector Here you can download copies of our publications Respective responsibilities This plan has been prepared in the context of the Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission www audit commission gov uk We have been appointed as the Authority s independent external auditors by the Audit Commission the body responsible for appointing external auditors to local public bodies in England As external auditors we have a broad remit covering finance and governance matters Our annual work programme is set in accordance with the Code of Audit Practice the Code issued by the Audit Commission and includes nationally
11. ics and our team Fees and independence Communication of audit matters with those charged with governance Appendices Emerging issues and developments 2013 Grant Thornton UK LLP Understanding your business In planning our audit we need to understand the challenges and opportunities the Authority is facing We set out a summary of our understanding below Challenges opportunities 1 Financial resilience 2 Changes to emergency response 3 Maintaining value for money from support 4 Fire control e The Authority s ambition is to continue to A major review of front line emergency services e The North West Fire Control Centre is due to deliver high quality services whilst response processes was completed in e A programme of value for money reviews be fully operational by Spring 2014 The responding to major cuts in public 2012 13 Wide ranging and fundamental began in 2011 12 to ensure that services are Authority is influential in delivering the new spending changes to response arrangements are working efficiently and effectively The reviews collaborative arrangement which is intended planned to be made over the next few are identifying cost reductions and other to provide a more effective efficient and years including building new fire stations improvements resilient system i if 1 i 1 y Y y ly Our response e As part of our VfM conclusion work we e As part of our VfM c
12. lant amp A Equipment Equipment Property Plant amp Yes Property Plant amp v Equipment Equipment Intangible assets No Intangible assets bow None x Investments long amp Yes Investments v short term Debtors long amp short Yes Revenue M term Assets held for sale No Property Plant amp X Equipment Cash amp cash Yes Bank amp Cash Equivalents Borrowing long amp Yes Debt 4 short term Creditors long amp Yes Operating Expenses Creditors understated or not v Short term recorded in the correct period Provisions long amp Yes Provision 6 short term Pension liability Yes Employee remuneration tow None Income to the Yes Firefighters pensions Ff firefighters pension fund 2013 Grant Thornton UK LLP An audit focused on risks continued ECHEC Transaction Cycle Material Description of Risk Substantive potentially misstatement testing material risk balance Spending by the Yes Firefighters pension Payments to pensioners y Fund incorrectly calculated Top up grant Yes Grant income v receivable Net current assets Yes Firefighters pension v and liabilities 2013 Grant Thornton UK LLP Significant risks identified Significant risks often relate to significant non routine transactions and judgmental matters Non routine transactions are transactions that are unusual either due to size or nature and that therefore occur infrequently Judgmental matters may include the development
13. m audit work and in advance of our final accounts audit fieldwork we have considered e the effectiveness of the internal audit function e internal audit s work on the Authority s key financial systems e walkthrough testing to confirm whether controls are implemented as per our understanding in areas where we have identified a risk of material misstatement e atreview of Information Technology IT controls Internal audit Walkthrough testing 2013 Grant Thornton UK LLP Work performed We have reviewed internal audit s overall arrangements Where the arrangements are deemed to be adequate we can gain assurance from the overall work undertaken by internal audit and can conclude that the service itself is contributing positively to the internal control environment and overall governance arrangements within the Authority Walkthrough tests have been completed in relation to the specific accounts assertion risks which we consider to present a risk of material misstatement to the financial statements Conclusion Summary Overall we have concluded that the Internal Audit service continues to provide an independent and satisfactory service to the Authority and that we can take assurance from their work in contributing to an effective internal control environment at the Authority In year internal controls were observed to be operating in accordance with our documented understanding We reported two issues to the Head of Finance e
14. ment of the financial statements Non compliance with laws and regulations Expected modifications to the auditor s report or emphasis of matter Uncorrected misstatements Significant matters arising in connection with related parties SI el el Significant matters in relation to going concern Appendices 2013 Grant Thornton UK LLP Emerging issues and developments Accounting and audit issues Provisions Under IAS 37 Provisions Contingent Liabilities and Contingent Assets the criteria for recognising a provision is that there is acurrent obligation as a result of a past event e a transfer of economic benefit is probable and areliable estimate of the liability can be made We wish to highlight the following matters to you for consideration where a provision may be required Mutual Municipal Insurance the Scheme of Arrangement was triggered in November 2012 therefore it is now virtually certain that there will be a transfer of economic benefit If this liability has not been discharged by 31 March 2013 we would expect local authorities to recognise a creditor or if the timing or amount of the payment is uncertain a provision in their financial statements Equal pay in October 2012 the supreme court ruled that more than 170 former Birmingham City Council employees can make equal pay claims This effectively extends the time workers have to bring equal pay compensation claims from six months to six ye
15. o all figures in the accounts are supplied by the agreed dates and in accordance with the agreed upon information request list e The scope of the audit and the Authority and its activities have not changed significantly The Authority will make available management and accounting staff to help us locate information and to provide explanations 2013 Grant Thornton UK LLP Fees for other services Service Fees None Nil Independence and ethics We confirm that there are no significant facts or matters that impact on our independence as auditors that we are required or wish to draw to your attention We have complied with the Auditing Practices Board s Ethical Standards and therefore we confirm that we are independent and are able to express an objective opinion on the financial statements Full details of all fees charged for audit and non audit services will be included in our Audit Findings report at the conclusion of the audit We confirm that we have implemented policies and procedures to meet the requirement of the Auditing Practices Board s Ethical Standards Communication of audit matters with those charged with governance International Standards on Auditing ISA 260 as well as other ISAs prescribe matters which we are required to communicate with those charged with governance and which we set out in the table opposite This document The Audit Plan outlines our audit strategy and plan to deliver t
16. of accounting estimates for which there is significant measurement uncertainty ISA 315 In this section we outline the significant risks of material misstatement which we have identified There are two presumed significant risks which are applicable to all audits under auditing standards International Standards on Auditing ISAs which are listed below Significant risk Description The revenue cycle includes Under ISA 240 there is a presumed risk that revenue fraudulent transactions may be misstated due to the improper recognition of revenue Management over ride of controls Under ISA 240 there is a presumed risk that the risk of management over ride of controls is present in all entities 2013 Grant Thornton UK LLP Substantive audit procedures Work completed to date e Discussed with management and assessed the controls in place to prevent and detect fraudulent transactions e Completion of entity level control evaluation Further work planned e Review and testing of revenue recognition policies e Testing on material revenue streams Work completed to date e Discussion with management and evaluation of responses Further work planned e Review of accounting estimates judgments and decisions made by management e Testing of journal entries e Review of unusual significant transactions Other risks The auditor should evaluate the design and determine the implementation of the entity s controls including
17. onclusion work we will e As part of our VfM conclusion work we will e As part of our VfM conclusion work we will will consider the Authority s financial consider the progress that the Authority is consider the outcomes from the reviews assess the progress being made in resilience making in implementing the planned changes implementing the new arrangements in our meetings with senior management 2013 Grant Thornton UK LLP Developments relevant to your business and the audit In planning our audit we also consider the impact of key developments in the sector and take account of national audit requirements as set out in the Code of Audit Practice and associated guidance Developments and other requirements 1 Financial reporting and Whole of Government 2 Policy developments e New Fire amp Rescue national 3 Corporate governance 4 Pensions e Annual Governance 5 Financial pressures and e The Government has efficiency Accounts WGA Continuing debate about the treatment of the pension fund top up grant Changes to the CIPFA Code of limited significance to Fire authorities The Authority is required to submit a Whole of Government accounts pack We will continue to liaise with you CIPFA and the Audit Commission on the accounting treatment of the pension fund top up grant We will test the Authority s compliance with the CIPFA Code of Practice We will comply with any audit
18. review the 2013 14 Integrated Risk Management Plan and key financial reports review of reports by other regulators and external bodies discuss the Authority s VfM arrangements with officers review any relevant work or reports of Internal Audit do specific work in response to any risks identified during the audit Logistics and our team The audit cycle March 2013 Interim audit visit July 2013 August 2013 Final accounts Completion visit reporting Key phases of our audit September 2013 Debrief Our team Julian Farmer Engagement Lead T 0161 MO E julian d farmer uk gt com Paul Morgan Associate T 01612146380 E paul morgan uk gt com 2013 Grant Thornton UK LLP Alan Rawling Manager T 01612146374 M 07880456168 E alan j rawling uk gt com Date January February 2013 March 2013 17 April 2013 1 July 2013 31 August 2013 September 2013 By 30 September 2013 By 31 October 2013 Activity Planning meetings Interim site work The audit plan presented to the Authority Year end fieldwork commences Audit findings clearance meeting Authority meeting to report our findings Sign financial statements and VfM conclusion Issue Annual Audit Letter Fees and independence Fees M Authority audit Total 39 813 39 813 Our fee assumptions include Our fees are exclusive of VAT e Supporting schedules t
19. s for securing economy efficiency and effectiveness in its use of resources This is known as the Value for Money V M conclusion 2012 13 VFM conclusion Our Value for Money conclusion will be based on two reporting criteria specified by the Audit Commission We will tailor our VfM work to ensure that as well as addressing high risk areas it is wherever possible focused on the Authority s priority areas and can be used as a source of assurance members Where we plan to undertake specific reviews to support our VfM conclusion we will issue a Terms of Reference for each review outlining the scope methodology and timing of the review These will be agreed in advance and presented to the Authority or appropriate Committee The results of all our local VfM audit work and key messages will be reported in our Audit Findings report and in the Annual Audit Letter We will agree any additional reporting to the Authority on a review by review basis 2013 Grant Thornton UK LLP Code criteria The Authority has proper arrangements in place for e securing financial resilience e challenging how it secures economy efficiency and effectiveness in its use of resources Work to be undertaken Risk based work focusing on arrangements relating to financial governance strategic financial planning and financial control Specifically we will review the 2011 12 VfM conclusion review the 2012 13 Annual Governance Statement
20. s understated Cost of services Yes Employee remuneration Remuneration expenses not v employee correct remuneration Cost of services Yes Other revenues v other revenues fees amp charges Gains Loss on No Property Plant and x disposal of non Equipment current assets Interest payable and Yes Borrowings A similar charges Pension Interest cost Yes Employee remuneration Interest amp No Investments x investment income Return on Pension Yes Employee remuneration v assets 2013 Grant Thornton UK LLP An audit focused on risks continued Material or Transaction Cycle Material Description of Risk Substantive potentially misstatement testing material risk balance Impairment of No Investments x investments Income from council Yes Revenue a tax Other Government Yes Grant Income v grants Capital grants amp Yes Property Plant amp Contributions Equipment including those received in advance Surplus Deficit on Yes Property Plant amp revaluation of non Equipment current assets Actuarial gains Yes Employee remuneration Losses on pension fund assets amp Z liabilities Other comprehensive No Revenue Operating x gains Losses expenses 2013 Grant Thornton UK LLP An audit focused on risks continued ECHEC Transaction Cycle Material Description of Risk Substantive potentially misstatement testing material risk balance Property Plant amp Yes Property P
21. that the reconciliation of the general ledger to the payroll reports provided by the service provider is no longer being performed The Head of Finance will ensure that the reconciliations are completed as part of the year end process and e that the Head of Finance is able to raise journal entries The Head of Finance considers that this is necessary for business continuity because of the small size of the finance team He states that he has not raised any journal entries in 2012 13 We have not yet completed our evaluation of how the Authority assures itself that appropriate controls are in place at its payroll and pensions service provider to ensure that calculations are being made correctly We will provide an update on this issue in our Annual Governance Report Results of interim audit work continued Work performed Conclusion Summary Review of information technology Our information systems specialist will perform a high level review of Any issues arising from the high level review will be brought to IT controls the general IT control environment as part of the overall review of the attention of officers and the Authority if required the internal controls system This will include a follow up of the issues raised in the previous year 2013 Grant Thornton UK LLP Value for Money Introduction The Code of Audit Practice requires us to issue a conclusion on whether the Authority has put in place proper arrangement
22. we focus audit effort on those areas where we have identified a risk of material misstatement in the accounts The table below shows how our audit approach focuses on the risks we have identified through our planning and review of the national risks affecting the sector Definitions of the level of risk and associated work are given below Significant Significant risks are typically non routine transactions areas of material judgement or those areas where there is a high underlying inherent tisk of misstatement We will undertake an assessment of controls if applicable around the risks and carry out detailed substantive testing Other Other risks of material misstatement are typically those transaction cycles and balances where there are high values large numbers of transactions and risks arising from for example system changes and issues identified from previous years audits We will assess controls and undertake substantive testing the level of which will be reduced where we can rely on controls None Our risk assessment has not identified a risk of misstatement We will undertake substantive testing of material balances Where an item in the accounts is not material we do not carry out detailed substantive testing Material or Transaction Cycle Material Description of Risk Substantive potentially misstatement testing material risk balance Cost of services Yes Operating expenses Operating expenses v operating expense
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