Perth & Kinross Council. Risk Assessment, Annual Audit Plan and Fee Proposal for 2007/08. External Audit Report No: 2008/01

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1 Perth & Kinross Council Risk Assessment, Annual Audit Plan and Fee Proposal for 2007/08 External Audit Report No: 2008/01 Draft Issued: 11 February 2008 Final Issued: 29 February 2008

2 Contents Page Page 1. Executive Summary 1 Appendix I - Documents reviewed Audit Framework 2-4 Appendix II Grant claims included in proposed fee Audit Approach Business and Audit Risk Analysis and Plan Planned Audit Outputs and Fee Proposal Audit Team 27 Risk Assessment, Annual Audit Plan and Fee Proposal for 2007/08

3 Executive Summary 1.1 Introduction and Background We have been appointed by the Accounts Commission as Perth & Kinross Council s external auditors for the 5 year period from 1 April 2006 to 31 March This is our overall audit plan for the second year of our appointment. Our audit is governed by our letter of appointment, the Local Government Acts, auditing standards and Audit Scotland s Code of Audit Practice This document outlines: our audit framework, our audit approach, our understanding of the Council s business risks, our audit risk analysis and audit plan, the planned audit outputs and our proposed fee, and our audit team Background and planning information has been gathered through discussion with the Head of Finance, the Chief Internal Auditor, other senior staff and a review of the documents listed at Appendix I. In gathering this information we have considered planning guidance issued to us by Audit Scotland and the issues in the Audit Scotland Priorities and Risk Framework document (PRF) for 2007/ Acknowledgements We would like to take this opportunity to thank all the officers within the Council who assisted us in gathering information for this plan. 1.3 Summary of Planned Audit Work Table 1: Planned Audit Outputs Overall Planning Risk Assessment, Annual Audit Plan and Fee Proposal Governance NFI Questionnaire Financial Statements Audit Plan Fraud returns Performance PRF Return/Report SPI Report and SPI Return Local Auditor Input on the Full Best Value Review see para 2.5 PRG Overview Report Proforma Return Finance HB/CTB Subsidy Management Letter follow-up Communication of Audit Matters to Those Charged with Governance - ISA 260 Report Audit opinion on financial statements Auditors reports on grant claims and returns Overall Conclusion Report to Members and the Controller of Audit Additional outputs may be required where there are significant issues arising from audit work currently expected to be included in the reports above. Tables 3 and 4 identify where this may apply. 1.4 Proposed Fee Based on the work we assess is required to discharge our audit responsibilities, the total fee for the 2007/08 audit is 308,240 as agreed by the Head of Finance on 29 February

4 Audit Framework 2.1 Introduction Our audit framework is set by our letter of appointment, the Local Government Acts, (primarily Part VII of the Local Government (Scotland) Act 1973), auditing standards, Audit Scotland s Code of Audit Practice, and ad hoc guidance issued by Audit Scotland This framework provides local authorities with an audit model that is wider than simply providing assurance on the financial statements and the internal control environment. This wider model covers finance, governance and performance. 2.4 Audit Objectives Our objectives, clearly identified in the Code, are summarised in Table 2. Table 2: Auditors objectives Key Area Financial statements Auditors objective Provide an opinion on audited bodies financial statements as required by the relevant authorities for the local government sector. Table 3 Page Reference Page Code of Audit Practice An updated Code of Audit Practice (the Code) was published in March This plan takes account of the Code. Corporate governance arrangements Review and report on, as required by relevant legislation and the Code, the Council s corporate governance arrangements in relation to systems of internal control; the prevention and detection of fraud and irregularity; standards of conduct, and prevention and detection of corruption; and the Council s financial position. Pages 9 & Audited Bodies and Auditors Responsibilities Audit Scotland has issued a statement on audited bodies and auditors responsibilities in relation to all aspects covered by the audit process. The Code incorporates this statement into each section for easy reference. Attention is drawn to these relative responsibilities. Performance management Review and report on, as required by relevant legislation and the Code, the Council s arrangements for securing Best Value; complying with its community planning duties; aspects of managing its performance in relation to economy, efficiency and effectiveness in the use of resources; and for preparing and publishing statutory performance information. Page 11 &12 Source: Audit Scotland s Code of Audit Practice 2

5 Audit Framework 2.5 Best Value and Community Planning The Local Government in Scotland Act 2003 (the 2003 Act) introduced statutory requirements for both authorities and auditors in relation to Best Value and community planning Our involvement in Best Value audit is covered by arrangements made under section 53 of the 2003 Act, which gives the main responsibility for this aspect of the audit to teams from Audit Scotland. These teams carry out a cyclical programme of full Best Value audits across Scotland. We provide the local audit input and work with the central teams on the full review where we are the appointed external auditors. In other years we carry out transitional work before a full Best Value review or follow-up progress made by Councils that have had a full review The final year of the Best Value five-year programme is underway and the Council is included as one of the reviews planned for this year s programme. Audit Scotland s planning guidance advises that the timing of this review is from November 2007 to July Following the Council s submission and presentation in January the review is currently underway The reports on two centrally directed studies are planned for issue during Improving the Scottish School Estate is due for publication in March and Equalities is expected to be published in June/July. Studies planned for 2008 include Civil contingencies planning, Leisure services and a Community planning follow-up. We will keep you advised of further information we receive from Audit Scotland. 2.7 Planning Guidance Audit Scotland s planning guidance for 2007/08 specifically directs us to undertake work on the following: Provision of the Independent Auditors Report placed on the financial statements (and any opinions on consolidation packs/whole of government accounts returns) by 30 September An on the audit addressed to the Council Members and the Controller of Audit by 31 October Centrally Directed Performance Reviews Audit Scotland undertakes a number of centrally directed performance audit reviews each year. The Code directs us to participate in these at a local level if required. Based on the proposed programme for 2007/08 there will be no requirement for local auditor involvement this year. Submission of fraud returns to Audit Scotland. Certification of grant claims submitted by the Council that have been approved for audit by Audit Scotland. Appendix II lists the grants included in our 2007/08 audit fee. 3

6 Audit Framework 2.7 Planning Guidance (cont d) Other work requested by Audit Scotland (eg follow-up issues arising from 2006/07 audits, work to provide information for the overview report on the local authority sector or local performance audit work PRG Overview Report Proforma Return). Submission of data returns on statutory performance indicators (SPIs) to Audit Scotland during August A locally determined performance audit study or additional work on themes identified in Audit Scotland s PRF, if applicable. A return to Audit Scotland on PRF issues. The date for the submission of the return has been confirmed as 29 February Monitoring of progress with the National Fraud Initiative (NFI) and completion of questionnaire. Interim audit work, based on the Council s performance against the Housing Benefits/Council Tax Benefits Performance Standards, which contributes to the audit of subsidy grant claims. To work with other inspection agencies such as HM Inspectorate of Education and the Social Work Inspection Agency. At present we are not aware of any inspections in which we will be required to participate for 2007/08. 4

7 Audit Approach 3.1 Audit Approach We plan our audit to meet the objectives discussed at Section 2 under guidance from Audit Scotland and in accordance with the requirements of the Code and applicable auditing standards Our approach is risk-based and designed to be robust, efficient, challenging and fair. Key features of our approach are the integration of work for the financial, governance and performance strands of our remit; a focus on key business, operational and financial risks; financial statement audit procedures that maximise assurance from existing internal control processes; and maximum reliance on internal audit work. 3.2 Risk Assessment We begin by gaining an understanding of the financial and business risks facing the Council. We assess the likelihood of the risk occurring and the impact this could have on delivery of services and the financial position. We then assess the control arrangements that the Council has in place to manage these risks, and whether the risk has been reduced to an acceptable level. We also consider the Council s decision-making, governance and performance management frameworks. Audit Scotland s planning guidance and PRF contribute to the identification of issues to be considered in this stage of our work Information is gathered from a series of interviews with senior officers and a review of key Council documents. We also obtain information from the Council s Chief Internal Auditor, through discussion and review of relevant reports (see Appendix I for documents reviewed) The main issues identified from this process are noted in Section 4 together with their audit implications. 3.3 Reliance on Internal Audit Work The Code directs us to maintain effective co-ordination with internal audit and place the maximum possible reliance on their work. We reviewed the framework for the provision of internal audit services during last year s audit, using CIPFA s updated Code of Practice for Internal Audit in Local Government in the United Kingdom. We established that we could place reliance on their work From our review of the internal audit plan for 2007/08 we expect to be able to place reliance on their work in the following areas: Report and file available for review 30 May 2008 Information Security Housing Benefits Payroll Payment of Creditors Revenue Budgeting Systems Development Procedures Best Value/Shared Services Council Tax/NDR Insurance Property Management Data Protection Single Status Income/Debtors 5

8 Audit Approach 3.3 Reliance on Internal Audit Work (cont d) (cont d) Procurement Tayside Contracts Waste Management / Strategic Waste Fund Investment in Learning Devolved Management of Schools School Transport Community Care (Financial Guardianship) Building Services Contracts / Billing Housing Improvement Grants Housing Standard Delivery Plan Statutory Performance Indicators Charitable Fund Further areas may be identified following completion of our initial financial control evaluation (see para 3.4 below) Audit work on Statutory Performance Indicators is still to be discussed with the Chief Internal Auditor to agree the allocation of work between Internal and External audit We will review the conclusions from all internal audit outputs to inform our overall knowledge of the Council s systems and their compliance with the Local Code of Corporate Governance. 3.4 Financial Control Evaluation The financial control environment will be considered at an early stage of our work to identify controls that can be relied upon for the production of figures for the financial statements. This will involve identification and assessment of the key controls for the main financial systems Where possible we will seek to place reliance on internal audit work to ensure these controls are working effectively. Where internal audit do not perform tests on key controls we will reassess our audit work and either test the operation of the key controls or carry out substantive testing as part of the financial statements audit We will perform a detailed file review in advance of our financial statements audit in order to obtain the necessary evidence to enable us to place reliance upon internal audit work. We will report the extent of our actual reliance in our Financial Statements Audit Plan and provide a summary in the Report to Members and the Controller of Audit (our ). Our audit approach and our audit fee are dependent on the availability of those reports on which we plan to place reliance. 6

9 Audit Approach 3.5 Reliance on Work of Other Inspection Bodies We are required by the Code to contribute to the whole organisation approach to inspection through co-ordination amongst auditors, inspectors and other scrutiny bodies. We therefore place reliance on the reported results of the work of statutory inspectorates in relation to corporate or service performance and may monitor progress with implementation of action plans resulting from these reviews A draft report will be issued to allow the Council officers to confirm the factual accuracy of the report and to provide a response to any recommendations within an action plan. This includes details of the responsible officer and reasonable timeframes to be allocated for each of the agreed actions. Once this is completed, the final report will be issued to lead officers and submitted to the next Audit Sub-Committee. Our proposed reporting timetable is included in Section Communication and Reporting We will communicate regularly with officers throughout the audit year to plan and conclude individual projects, maintain an overview of the Council s business risks, and discuss any new issues that emerge. This communication should be two-way, and we encourage officers to have early discussions with us on any issues that may give rise to audit comment at a later date Communication with Members during the course of the year will be through our reports and our attendance at the Audit Sub-Committee. Our formal reporting to all Members will be through our produced at the conclusion of each audit year At the conclusion of each project we will discuss our findings and recommendations for action with management prior to issuing a draft report, which will include our recommendations within an action plan. Recommendations will be graded by importance. 7

10 Audit Approach 3.7 Discharge of our Audit Responsibilities under the Code Table 3 shows the key areas where we will focus our work in discharging our responsibilities under each of the Code components. Section 4 notes the local implications of national issues and Council specific risks that also influence our audit plan. Table 3 Discharge of our audit responsibilities under the Code Code component Auditors responsibilities Work we undertake to discharge our audit responsibility Audit output Financial statements To audit the financial statements in accordance with the timescale set by Audit Scotland and give an opinion on whether they present fairly the financial position of the Council and its income and expenditure and whether they have been properly prepared in accordance with relevant legislation, applicable accounting standards and other reporting requirements. To provide reasonable assurance, subject to the concept of materiality, that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error; comply with statutory and other requirements that apply; and comply with relevant requirements for accounting presentation and disclosure. We will discharge our responsibilities for the audit of the financial statements in accordance with International Standards on Auditing and Quality Control (UK and Ireland), and Ethical Standards, applicable Practice Notes and guidance issued by the Auditing Practices Board. Evaluation of internal controls and their impact on the financial statements and our year-end audit work will be undertaken early in the audit process. Where appropriate the operation of key controls will be tested, with reliance placed on internal audit work wherever possible. For specific areas deemed as high risk we will perform detailed substantive testing of year-end transactions, account balances, estimates and provisions. We will use the CIPFA disclosure checklist to ensure compliance with statutory requirements and the SORP for accounting presentation and disclosure. Financial Statements Audit Plan Separate control evaluation summary and other interim management reports if required, otherwise this will be included in the above plan ISA 260 Report - Communication of Audit Matters to Those Charged with Governance Audit opinion on financial statements Housing Benefit/Council Tax Benefit Subsidy Management Letter follow-up 8

11 Audit Approach Code component Auditors responsibilities Work we undertake to discharge our audit responsibility Audit output Corporate Governance arrangements Systems of internal control In addition to reviewing systems of financial internal control, primarily to inform our work on the financial statements, we are required in the wider context to consider systems which may not impact directly on the financial statements. To review and report on the internal control compliance statement included with the accounts. (Statement on Systems of Internal Financial Control (SSIFC) or the wider Corporate Governance statement). The work undertaken at the planning stage considers a number of systems under the PRF headings. We plan to carry out further work on some systems and will keep an ongoing overview of developments in other areas. Where possible we will seek to place reliance on the work of internal audit. We will review the process the Council uses to prepare and approve the compliance statement. We will ensure the statement is prepared in accordance with relevant regulation and ensure it reflects our understanding of the Council s position in relation to issues that should be considered for inclusion in the statement. We aim to undertake the majority of this work prior to the completion of draft accounts, with final review prior to signing the audit opinion. PRF Return/Report Financial Statements Audit Plan Separate report if required Audit opinion on financial statements Prevention and detection of fraud and irregularities To review and report on the arrangements in place to develop, promote and monitor compliance with standing orders and financial instructions; develop and implement strategies to prevent and detect fraud and other irregularity; and receive and investigate alleged breaches of proper standards of financial conduct or fraud and irregularity. We are required to submit information about instances of fraud and irregularity to Audit Scotland. When completing our review in this area we will have regard to Statement of Auditing Standards 110: Fraud and Error; and International Standards on Auditing 240: The Auditor s Responsibility to Consider Fraud in the Audit of Financial Statements. This review will cover arrangements for the prevention and detection of fraud; whistleblowing procedures; and Fraud and Corruption strategies and policies. We will examine evidence within these arrangements to ensure that particular aspects of internal financial control such as segregation of duties, authorisation and approval processes, and reconciliation procedures are in place. Arrangements have been put in place for our notification of instances of fraud. We will review the Council s progress with the NFI data matches. Separate report if required Individual and annual fraud returns to Audit Scotland NFI questionnaire to Audit Scotland 9

12 Audit Approach Code component Auditors responsibilities Work we undertake to discharge our audit responsibility Audit output Corporate Governance arrangements (Cont d) Standards of conduct, integrity and openness To consider arrangements in place to maintain and promote proper standards of financial conduct and to prevent and detect corruption, including regular review and communication of these arrangements to all Members, managers and employees. We will review arrangements relating to standards of conduct and the prevention and detection of corruption and the operation of the Standards and Scrutiny Committee and the Audit Sub-Committee. This will include examination of standing orders and financial instructions; financial regulations and schemes of delegation; and the award of contracts. We will seek to place reliance on the work of internal audit where possible. Separate report if required Financial position To consider whether there are adequate arrangements to ensure the Council s financial position is soundly based with regard to financial monitoring and reporting arrangements; compliance with statutory financial requirements and achievement of financial targets; balances and reserves, including strategies about levels and future use; and the impact of planned future policies and known or foreseeable future developments. We undertake a review of financial planning as part of the PRF work. Work undertaken for the audit of the financial statements will also inform our consideration of this element. We will review capital and revenue budget setting and monitoring papers on an ongoing basis. This will include prudential indicators and investment plans. We will also review the strategies and policies in relation to the maintenance and use of balances and reserves. PRF Return/Report Financial Statements Audit Plan Separate report if required 10

13 Audit Approach Code component Auditors responsibilities Work we undertake to discharge our audit responsibility Audit output Performance management Best Value and community planning Within the context of the Accounts Commission s arrangements for discharging the statutory duty to be satisfied that there are proper arrangements for securing Best Value and complying with community planning responsibilities, we are required to be part of the Audit Scotland team for a full Best Value review or undertake transitional or follow-up work in intervening years. We consider Best Value implications in all aspects of our work. Transitional Best Value and community planning work will be undertaken under guidance from Audit Scotland. At a minimum this will involve follow-up of work undertaken previously, and where there is an improvement plan following a full Best Value audit we will consider progress with implementation. A full Best Value review is to be undertaken at the Council as part of this year s programme and we will provide briefing information to the Audit Scotland Best Value team and be involved in the audit as directed by Audit Scotland. Local Auditor Input on the Full Best Value Review Use of resources To assist Audit Scotland in local work for national studies if requested. To undertake locally determined reviews agreed with the Council. To consider arrangements for performance management. Indications are that there will be no local auditor involvement this year. Where applicable we will plan local projects or undertake follow-up on themes identified from the PRF. We will consider the arrangements for implementing the new national performance framework for local authorities to be delivered in association with Community Planning Partners and the introduction of Single Outcome Agreements from April PRF Return/Report Local Auditor Input on the Full Best Value Review PRG Overview Report Proforma Return 11

14 Audit Approach Code component Auditors responsibilities Work we undertake to discharge our audit responsibility Audit output Performance information To review the systems and arrangements for collecting, recording and publishing statutory performance indicators (SPIs). Systems in place for collection and publication of data will be reviewed on a cyclical basis, having regard to risk influences such as changes in systems, SPI criteria, results of analytical review or previously unreliable systems or where there has been a failure to report. Where possible reliance will be taken from any internal audit work in this area. SPI Return to Audit Scotland SPI Report 12

15 Business and Audit Risk Analysis and Plan 4.1 The key business risks identified from our planning process are summarised in Table 4. These include the local implications of national issues and specific local risks. We have taken the corporate risks identified by the Council into consideration in this assessment. Our PRF return will expand on the background to these risks. 4.2 We have assessed the work required to fulfil our audit responsibilities in relation to these risks and noted the planned audit output. Our assessment of required work identifies where we plan to place reliance on the work of internal audit and other agencies. Proposed timings for final reports and the Audit Sub-Committee meeting to which these will be presented are summarised in Table 5 in Section 5. Table 4 Key Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Political Structure and Governance Changes in the political structure following the May 2007 elections may impact adversely on the effectiveness of scrutiny and governance arrangements. This risk affects both the changeover period and the arrangements going forward. Induction and awareness training was provided for all members following the 2007 elections, through in-house and externally sourced training. A Personal Development Programme for Elected Members was launched in January Proposals for the development of a training programme covering the establishment of an effective review programme, questioning techniques, statistical awareness and understanding and examining relevant evidence to be able to focus on improvements required are to be offered to all elected members to provide core skills within the context of scrutiny. A Review of Political Decision-making Structures was agreed by the Council in December 2007, setting out the position in relation to the scrutiny element of the Council s performance management framework together with proposed measures for improvement. The re-established Modernising Governance Member Officer Group have a remit to keep these structures under review and report back to the Council as necessary. Where robust arrangements are not in place to effectively manage these changes and the Council s business going forward, our governance responsibilities are affected. Circumstances may also be created that impact on our performance and finance responsibilities. We will review, monitor and report on the scrutiny and governance arrangements being put in place. This will include consideration of the support framework for Members including on-going training and standards of conduct and progress with the Scrutiny Committee Improvement Plan. PRF Return/Report Financial Statements Audit Plan Local Auditor Input on the Full Best Value Review 13

16 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Management Restructure and changes Management restructuring, corporately and within services, may lead to there being no clear, up to date, statement of the roles and responsibilities of senior management, supported by schemes of delegation and powers. Service delivery standards may not be adequately maintained and properly managed through this period of change. Existing internal control arrangements may not operate effectively. Also there may be a risk of non-compliance with legal requirements and functions if arrangements relating to new legislation are not disseminated to management. Our discussions identified that the senior management team is aware of the impact planned management changes may have on corporate governance arrangements, service delivery and links with community planning, and has planned actions to minimise risks. Major changes during 2006/07 included the appointment of two Executive Directors. Where the planned actions do not adequately address the risks there may be implications for our governance, finance and performance responsibilities. We will review the governance framework, including the Council s regulations, scheme of delegation and performance management framework during the audit year to ensure that the new management roles are properly defined and that the Council s regulations are appropriately updated. We will follow up on-going progress with agreed actions from the SOLACE reports. We will also review strategic policy documents, including any updates and revisions, and monitor annual public corporate and service performance reports submitted to the members, strategic committees and the Executive Officer Team (EOT) throughout the year. PRF Return/Report Financial Statements Audit Plan Local Auditor Input on the Full Best Value Review 14

17 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Corporate Risk Management The identification and management of corporate risks may not be sufficiently robust or transparent to ensure all risks are adequately addressed or to support the Council s decisions/choices made. Identified risks may not be effectively communicated and embedded throughout the Council in corporate and service plans and communicated to all stakeholders. Progress with the implementation of the Corporate Risk Management Strategy and the embedding of risk management within services and throughout the Council was reported to the Standards and Scrutiny Committee in November Following on from this a plan of risk management activity was proposed for 2007/08 by the Corporate Risk Management team. There is no corporate risk register in place as such but there is a database system Magique that records and prioritises risks across all services of the Council. There are also risks identified throughout the various service plans. Internal Audit carried out a review of the Risk Management process as part of their 2006/07 Audit Plan which reported adequate and effective internal controls in the areas reviewed, with some scope for additional enhancements to assist with the process of embedding risk management within the Council s culture. Weaknesses in risk management arrangements primarily impact on our governance and performance responsibilities, although the consequences of poor risk management may have a financial impact. We will continue to monitor progress with the Council s plans to further embed risk management through discussions with the responsible staff and review of relevant papers. We placed reliance on the 2006/07 internal audit review in this area and will monitor progress with the action points. PRF Return/Report Financial Statements Audit Plan Local Auditor Input on the Full Best Value Review 15

18 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Corporate Asset Management Potential risks relating to this area include whether a Council s assets are fit for purpose and current robust condition surveys exist on condition and suitability. Capacity and needs constantly change, particularly when shared services are being investigated which may impact on service delivery requirements. Current information and communications technology assets may not provide the required support to maintain and improve service delivery. During 2006/07 we carried out a review of the Council s corporate asset management arrangements focussing on office accommodation and ICT assets. From our review it was recognised that progress has been made with arrangements, but also that there was a need to improve. Our Corporate Asset Management report is currently issued in draft with an attached action plan for management to comment and complete. Preparation of an overarching Corporate Asset Management Plan is one of the key improvement actions in the Organisational Change and Improvement Plan and a timescale of the end of 2008 has been set to put this plan in place. The Council s Landlord and Homelessness Services were inspected by Communities Scotland during November and December The Communities Scotland Inspection Report identified key areas for improvement action and requires that for areas graded C or D the Council submit an improvement plan. An improvement plan has been developed in response to the key areas requiring targeted improvement. In addition there is a new requirement for Councils to produce Strategic Housing Investment Plans (SHIP) as part of their Local Housing Strategy. The Council reported their SHIP to committee in November 2007 for submission to Communities Scotland by 30 November Where corporate asset management is not sufficiently embedded in the Council s strategic planning process and reliable current information is not available to support management s decisions this impacts on our governance, performance and finance responsibilities. We will monitor progress with the recommendations identified in our Corporate Asset Management Report. This will include monitoring progress towards the development of a high level Corporate Asset Management Strategy or Policy, as identified in the Organisational Change and Improvement Plan. We will take assurance from the review on roads completed by Audit Scotland s Performance Audit Group (PAG) and their study on the Schools Estate across all councils due to be reported in March We will also take assurance from Communities Scotland s specific inspection role in relation to the Council s housing and monitor progress with the improvement plan in response to the key improvement areas identified by Communities Scotland. We will also monitor progress with the new requirement to produce Strategic Housing Investment Plans (SHIP) as part of the Local Housing Strategy. PRF Return/Report Financial Statements Audit Plan Local Auditor Input on the Full Best Value Review 16

19 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Financial Planning Key risks in this area are that the Community Plan and Corporate Plan priorities may not have been properly costed and planned for and the Council s revenue and capital plans may not link to these priorities; the plans may be relatively short term and not consider longer term affordability and whole life funding and investment requirements; the budget setting process may not be policy led and the reporting of the attainment of key priorities not taken into account; the financial planning process may not be aligned to the Corporate plans and Service BMIPs processes and timetables; efficiency savings or demand led service requirements may not be met due to cash limits and mounting cost pressures. There is a risk that the identified weaknesses in the accounting and internal control systems of the Significant Trading Operation (STO) may not be addressed and affect the ability to record, process, summarise and report financial and other data. The risks associated with the planning framework are being addressed with the move to policy led budgeting, with a pilot underway in the Environment Service for 2008/09. Service budget pressures have been identified for 2007/08, particularly within Housing and Community Care in relation to the rising costs of provision for the homeless and the care of elderly due to increasing numbers. Construction inflation is also identified as an increased cost pressure which could adversely impact on the total investment required by the Council to meet the Scottish Housing Quality Standard over the next few years. The Council is reviewing the status of the STO and is committed to strengthening its performance monitoring arrangements for the STO. Financial planning impacts primarily on our finance and governance responsibilities. Where innovative solutions are found to manage budget pressures we may need to consider the correctness of accounting treatment and accounts presentation. We will review capital and revenue budget setting and monitoring papers throughout the year together with a review of the Council s strategy for maintaining reserves and balances. We will also review virements and the Council s accounting for additional grants and funding as part of our year-end audit. We will consider the clarity of links between revenue budgets and capital plans and the stated priorities within the key plans and consider if all existing and known future commitments are properly accounted for. We will also monitor progress with the policy led budget in the Environment Service. We will monitor progress with the outcome of the STO review and monitor performance reports to committees. PRF Return/Report Financial Statements Audit Plan Local Auditor Input on the Full Best Value Review 17

20 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Compliance with the SORP The Council s financial statements may not fully comply with the SORP requirements. The exercise to introduce a Revaluation Reserve from 1 April 2007, that includes valuation details for each asset carried in the Balance Sheet at current value, may not be put in place prior to the preparation of the current year s financial statements to allow the reporting publication deadlines to be met. From discussion we note that work on this exercise commenced in February The accounts may not be fully compliant with SORP requirements and the Revaluation Reserve and the revaluation gains may not be correctly stated. The year-end audit may be delayed and the audit and reporting deadlines may not be met. We have had early discussions with the Finance team and have undertaken to review the Revaluation Reserve prior to our year-end audit to ensure that it complies with the SORP requirements and other guidance before the draft accounts for 2007/08 are produced. Financial Statements Audit Plan Year-end Management Letter, if required Workforce management The key risk to the Council is that inadequate workforce planning will have a detrimental effect on service delivery and/or result in additional cost to ensure adequate service delivery. There are operational and financial risks around issues such as equal pay claims, job evaluation and single status and the impact of factors such as migrant workers, shortage of construction workers and other demographic factors. The Council is aware of the risks these issues pose and has plans at varying stages of implementation to address these. A Human Resources Strategy Securing the Future Together with Our Employees was approved by the Strategic Policy and Resources Committee in June The development of this strategy was one of the key outcomes of the Organisational Change and Improvement Plan. New terms and conditions under the single status agreement were implemented on 1 August 2007 and a funding strategy is in place to meet the costs up to 2013/14. This primarily impacts on our finance and performance responsibilities. We will monitor progress with the issues that affect workforce management through review of minutes, papers and discussion with officers. We also plan to place reliance on internal audit work on single status in this area. PRF Return/Report Local Auditor Input on the Full Best Value Review 18

21 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Best Value and Community Planning Everything the Council does impacts on Best Value and therefore all risks potentially influence achievement of continuous improvement. The particular risks for the Council this year are that progress with implementation of the continuous improvement strategies may not be on target, the submission prepared for the full review may not be balanced or identify all the relevant good practice, and a disproportionate amount of time may be devoted to the submission preparation thereby impacting on other business progressing effectively. For community planning the risks are that the Council does not adequately fulfil its leadership role, does not contribute effectively in partnership and does not deliver effectively in areas where it has lead responsibility for priorities in the Community Plan. The Council was a pilot for the Audit Scotland Best Value audit and improvements identified are progressed through the Organisational Change & Improvement Plan (OCIP), which sets a year on year improvement plan and monitors progress in each area of the plan. Five OCIP groups sponsored by a member of the Executive Officer Team and led by a second tier officer provided detailed updates on progress. Continuous improvement is demonstrated through several current projects, such as the policy-led budgeting, development of a 5 year capital planning approach, revised Corporate and Community Plans, development of a Human Resources Strategy and the establishment of a Contact Centre. The Community Plan was approved in advance of the May elections. A review of community planning processes was undertaken in 2005, with an improvement plan agreed in March This was revised in August 2007 and is progressing to schedule. Our risk is that we may not have sufficient knowledge of all aspects of the Council that the central Best Value team will expect input on during the Best Value audit. Other aspects of this area impact on our governance and performance responsibilities. We will ensure that we have knowledge from our ongoing audit and from specific enquiry on particular areas of Best Value and community planning. The Council is included in the final part of the Best Value programme, with the timing of the review scheduled for November 2007 to July Following the Council s submission and presentation in January the review is currently underway. We participate as directed as a full member of the team over this period. PRF Return/Report Local Auditor Input on the Full Best Value Review 19

22 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Waste Management Strategy Implementation of waste management strategies are important from an environmental perspective, however the immediate financial risk for the Council is that failure to achieve nationally set targets on waste reduction measures will have a financial penalty. This has been identified as one of the Council s key risks and various projects are in place to address the risk, including a financial options appraisal of pursuing the Council s waste infrastructure requirements through the Strategic Waste Fund (SWF) process with other Councils and the establishment of a Strategic Waste Member/Officer Group, to act as the Project Board for the delivery of the long term waste facilities for the Council. This impacts on our finance and performance responsibilities. We will monitor progress with actions to implement waste management strategies through review of minutes and papers and discussion with officers. We will place reliance on the results of waste management work undertaken by Audit Scotland s Performance Audit Group during 2007 and monitor progress with the key recommendations from this report which include encouraging the identifying of cost effective kerbside recycling systems, adoption of consistent best practice recycling schemes, standardisation of containers and colour coding, option appraisal of waste management systems and central and local government working together towards achieving the 2010, 2013 and 2020 Landfill Directive targets. PRF Return/Report Local Auditor Input on the Full Best Value Review Efficient Government Actions are in progress to implement the requirements of Efficient Government. The risk is that they do not progress timeously and do not deliver the expected outcomes. The Council submitted its Efficiency Statement to the Scottish Government for the deadline of 31 August The information will be used to inform the 2008/09 budget process. The Council s BMIPs and performance management frameworks are to be used to provide the evidence to support claimed savings. The arrangements for the reporting of efficiency savings, Efficiency Statements are compulsory from 2007/08. A review of the process used for the 2006/07 is to be undertaken to identify possible improvements and ensure that good practice is followed. This impacts on our finance and performance responsibilities. We will monitor progress with the requirements of Efficient Government and progress with the arrangements for reporting of efficiency savings. Where appropriate our review will be co-ordinated with our Best Value and PRF work. PRF Return/Report Local Auditor Input on the Full Best Value Review 20

23 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Procurement Procurement is a strategic issue which has long term consequences for the financial position of the council and the overall management of assets. Procurement is one of the five efficiency work streams. The risk is that the council does not take a corporate approach towards procurement to generate savings through more efficient processes, improved management information and co-ordinated purchasing. The Procurement Strategy was approved by Strategic Policy and Resources Committee in November 2006, which included two key work streams the roll out of e-procurement and the delivery of a collaborative procurement approach. Pilot areas for the eps project have been agreed, with potential implementation of the eps system across all Council services scheduled for August The Tayside Procurement Consortium was launched in November 2007 to develop joint procurement across Angus, Dundee City and Perth & Kinross Councils. Internal Audit carried out a review of Procurement as part of their 2007/08 to assess the extent of the council s compliance with the McClelland Report. This reported that progress has been made towards implementation of the recommendations in the McClelland report but that there was also scope for improvement. This impacts on our finance and performance responsibilities. We will monitor progress with the Procurement Strategy and key work streams through review of minutes, papers and discussions with officers. We also plan to place reliance on the work of internal audit in this area and will follow progress with the actions points from the report. Where appropriate our review will be co-ordinated with our Best Value and PRF. PRF Return/Report Local Auditor Input on the Full Best Value Review 21

24 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Shared Services Efficiency opportunities are available to Councils through shared services. There is a risk that the Council may not deliver the cost and service efficiencies expected from shared services. The Council is involved in local and national shared services projects. Locally the Council is involved in a project with Clackmannanshire, Stirling, Falkirk and East Dunbartonshire Councils. The project aims to provide multi-agency shared service capacity covering HR, payroll, finance and procurement. The Scottish Government s Shared Services A Guidance Framework makes reference to this project as an example of collaboration and shared practice. Additionally the Council is involved in the Tayside Procurement Consortium and is collaborating with the national Excel project. Internal Audit s workplan for 2007/08 Internal Audit includes a review of Best Value/Shared Services. This impacts on our finance and performance responsibilities. We will monitor progress with the shared services projects through review of minutes, papers and discussions with officers. We also plan to place reliance on internal audit work on shared services in this area. Where appropriate our review will be co-ordinated with our Best Value and PRF. PRF Return/Report Local Auditor Input on the Full Best Value Review 22

25 Business and Audit Risk Analysis and Plan Key business risks Audit risks and actions Planned output Housing Benefit/Council Tax Benefits Weaknesses in systems for the administration of Housing and Council tax benefits may lead to incorrect payments and loss of subsidy. The Council had a Benefit Fraud Inspectorate (BFI) visit reported in October An action plan was drawn up to address the weaknesses in claims administration and all actions have been completed. This section was also the subject to management restructuring. The Council is required to complete an annual self assessment against the HB/CTB Performance Standards. This impacts on our certification of the Housing Benefit/Council Tax Benefit subsidy claim. In planning the work we are required to undertake to certify the subsidy claim we will review the Council s performance against the HB/CTB Performance Standards and concentrate our testing in the poorer areas of performance. We will also liaise with internal audit to ensure that key controls are assessed and tested. Where possible we plan to place reliance on the work of internal audit in this area. We will follow up progress with identified areas for improvement noted during our audit of the 2006/07 HB/CTB subsidy claim. Subsidy claim certificate Housing Benefit/Council Tax Benefit Subsidy Management Letter followup Separate report if required We have identified a number of other issues that are currently being managed by the Council or are lower risk, in particular within Housing and Community Care and Education and Children s Services. A review of Council s social work services was carried out by the Social Work Inspection Agency (SWIA), with a report published in March The Council has produced an action plan in response to the inspection report. The status of these risks may change. We will monitor progress through review of Committee papers and minutes and discussion with officers, and revisit our actions if necessary. Where possible we will place reliance on monitoring by inspection agencies. 23

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