Internal Audit Report Falkland Islands Government Fixed Assets Draft Issued: January 2013 Final Issued: January 2013 Budgeted Days: 5 Actual Days: 5

Transcription

1 Internal Audit Report Falkland Islands Government Fixed Assets Draft Issued: January 2013 Final Issued: January 2013 Budgeted Days: 5 Actual Days: 5 1

2 Contents Executive Summary Findings and Recommendations Appendix 1 Audit Framework Appendix 2 Staff Interviewed Appendix 3 Controls Assurance Definitions Page

3 Executive Summary Introduction FIG maintains a variety of assets across a number of categories, ranging from land and buildings to technical equipment and airframes. These assets have a historic cost of over 150m and a net book value of around 90m. Each year over 3m of depreciation is charged to the accounts to reflect the cost of these assets. The area was last audited in April 2009, when an opinion of Excellent (1) was given. Overall Conclusion Control Objective 1. A robust Fixed Asset Register is in place to record all assets of the organisation. FIG continues to uses the Fixed Asset module of the Microsoft Dynamics GP 2010 system to record fixed asset transactions and accounting treatments. The system has the functionality to classify assets, record Useful Economic Lives and calculate depreciation rates. A range of reporting functionality is also available within the system, though a significant amount of workings are carried out via exports to Excel. Access to the Fixed Asset Register (FAR) is restricted to Treasury staff, and the system is protected and backed up in an appropriate manner. Control Objective 2. Detailed accounting policies are in place to control asset classification, capitalisation, depreciation and disposal. Accounting policies are in place to govern the classification of assets, thresholds for capitalisation and depreciation. All are reviewed on an annual basis and were found to be reasonable, and in accordance with accepted practices. Following a recommendation in the previous audit, guidance for managers on the disposal of assets has now been incorporated into Financial Instructions. Control Objective 3. Controls are in place to identify new assets and record them accurately in the Fixed Asset Register. Effective controls were found to be in place to ensure that Treasury identifies new assets to be capitalised during the year and record them in the Fixed Asset Register. As an additional control all departmental registers are reviewed on an annual basis to ensure any further movements not previously identified by the Treasury are added to the FAR appropriately. Asset categorisation was reviewed and all were found to have been 3

4 correctly treated. As noted in the last audit, the department has considered capitalising assets on a monthly basis, but this would be problematic. For ongoing projects the costs would be capitalised as individual assets each month, which can lead to multiple entries for one major project. Also, due to the way the system operates assets recorded on the Dynamics FAR prior to the previous year being closed could not be distinguished from earlier assets, which would lead to inaccurate reporting. The department has therefore decided that whilst asset information will be collated on a monthly basis to reduce the amount of work at year-end, entries will not be made onto the FAR. Given that this issue has been identified and discussed within the department it is not necessary to make a recommendation. Control Objective 4. Assets are disposed of in accordance with agreed policies, and accounting records are adjusted accordingly. A sample of asset disposals was reviewed and all were found to have been correctly treated. Proceeds from asset sales were recorded and coded correctly, and the necessary adjustments to asset value and accumulated depreciation were made in all cases. Control Objective 5. Depreciation is calculated in accordance with agreed policies, and applied correctly. Depreciation calculations for a number of assets were reviewed to ensure correct and appropriate. In two instances the depreciation charged by the system did not equal the expected rate given the identified Useful Economic Life. Further investigation by the department identified a further 4 assets where depreciation charged is not as expected. A recommendation has been raised to address this issue. Opinion Results of testing shows that the overall control environment with regards to Fixed Assets is Excellent (1). The context of this assurance level is explained in more detail in Appendix Three. Acknowledgement We would like to take this opportunity to thank the Financial Accountant and her staff for their assistance during the course of the audit. 4

5 Recommendation Summary High Medium Low Recommendations High Priority Medium Priority Low Priority Fundamental control weakness for senior management action Other control weakness for local management action Recommended best practice to improve overall control 5

6 Section One Findings and Recommendations Control Objective 3 1. Depreciation is calculated in accordance with agreed policies, and applied correctly. Finding Work by external audit identified that depreciation rates charged by the Dynamics system do not always match expected rates given the life and category of the asset. Testing carried out in this audit identified two assets where this was the case. Further investigation carried out by the Financial Accountant has identified six assets where depreciation charged does not equal that which would be expected. Recommendation, Priority Level and Responsible Officer The identified discrepancies should be adjusted for as part of the 2012/2013 year-end procedures. In addition the department may wish to repeat the exercise carried out by the Financial Accountant at year-end, to provide assurance depreciation is being charged as expected. Medium Priority Financial Accountant Management Response and Implementation Date Agreed. Once the year-end asset register workings are complete the department will run a comparison between UEL and depreciation rates in order to highlight any discrepancies. The department will then amend any non-trivial errors identified in the asset register and correct the year-end accounts accordingly. 6

7 Appendix 1 Audit Framework Audit Objectives This audit was undertaken to provide assurance that there are adequate controls are in place to manage revenue and risks in respect of Fixed Assets. Audit Approach and Methodology The audit approach was developed with reference to Internal Audit procedures and by assessment of risks and management controls operating within each area of the scope. The following procedures were adopted: Identification of the role and objectives of each area; Identification of risks within the systems, and controls in existence to allow the control objectives to be achieved; and Evaluation and testing of controls within the systems. From these procedures we have identified weaknesses in the systems of control, produced specific proposals to improve the control environment and have drawn an overall conclusion on the design and operation of the system. Areas Covered Audit work was undertaken to cover the following areas: Robustness and effectiveness of the Fixed Asset Register Fixed assets accounting policies Additions, purchases and transfers of Assets under Construction Fixed Asset disposals Depreciation calculations 7

8 Appendix 2 Staff Interviewed and Report Distribution Claire Mitchell Nicola Granger Financial Accountant Financial Secretary Report Distribution A copy of this report has been distributed to the following officers: Draft Report Claire Mitchell Nicola Granger Financial Accountant Financial Secretary Final Report Claire Mitchell Financial Accountant Nicola Granger Financial Secretary 8

9 Appendix 3 Controls Assurance Definitions Excellent (1) A cost effective control system is in place commensurate with the risks facing the activity. Compelling evidence is found to corroborate the conclusion that the control systems are operating as expected. Good (2) A system of control is in place that is designed to assist in the achievement of service objectives. Strong evidence is available to support the conclusion that controls are operating as expected. Satisfactory (3) A system of control is in place that is designed to assist in the achievement of service objectives although there may be opportunities to improve controls. Some evidence is available to support the conclusion that controls are operating as expected. Limited (4) A system of control is in place but omits one or more key elements from its design. Alternatively, the auditor may be unable to find any firm evidence that a system is operating as expected. There is a quantifiable risk that service objectives will not be achieved and/or a serious loss (financial or otherwise) will be suffered by the Falkland Islands Government. None (5) Key features of internal control are missing from the system. The effect of this is to create a strong likelihood that service objectives will not be achieved and/or a serious loss (financial or otherwise) will be suffered by the Falkland Island Government. 9