Audit Committee, 1 March 2004, Report 10

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Audit Committee, 1 March 2004, Report 10

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Agenda Item No: Report No:Report Title: Strategic Audit PlanReport to: Audit Committee Date: 1 March 2004Ward(s) Affected: AllReport By: Director of Finance and Community Services Contact Officer(s): David Heath, Chief Internal Auditor Purpose of Report:To agree the Strategic Audit Plan for the period 2004/2005 to 2006/2007 andthe Annual Audit Plan for the year 2004/2005.Officers’ Recommendations:1 To agree the three year Strategic Audit Plan.2 To agree the Annual Audit Plan for 2004/2005.1 Background1.1 Lewes District Council Internal Audit operates in accordance with theauditing guidelines published as a Code of Practice for Internal Audit bythe Chartered Institute of Public Finance and Accountancy (CIPFA). 1.2 The purpose, authority and responsibilities of Internal Audit are definedin the Charter for Internal Audit that was approved by the AuditCommittee in May 2002, with updates approved by the Committee inDecember 2003 to ensure compliance with the latest version of theCIPFA Code (2003). 1.3 The 2003 CIPFA Code refers to the need for a high level strategy thatoutlines how the Internal Audit service will be delivered and developed,and for there to be a risk based periodic plan that sets out how thestrategy is to implemented.1.4 The Strategic Audit Plan sets out the scope, conduct and timing ofinternal audit work for the three year period from 2004/2005 to2006/2007. The Strategic Audit Plan is reviewed each year so that itcan be amended ...

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Extrait

Agenda Item No:

Report No:

Report Title:

Strategic Audit Plan

Report to:

Audit Committee

Date: 1 March 2004

Ward(s) Affected:

All

Report By:

Director of Finance and Community Services

Contact Officer(s):

David Heath, Chief Internal Auditor

Purpose of Report:

To agree the Strategic Audit Plan for the period 2004/2005 to 2006/2007 and

the Annual Audit Plan for the year 2004/2005.

Officers’ Recommendations:

To agree the three year Strategic Audit Plan.

To agree the Annual Audit Plan for 2004/2005.

Background

1.1

Lewes District Council Internal Audit operates in accordance with the

auditing guidelines published as a Code of Practice for Internal Audit by

the Chartered Institute of Public Finance and Accountancy (CIPFA).

1.2

The purpose, authority and responsibilities of Internal Audit are defined

in the Charter for Internal Audit that was approved by the Audit

Committee in May 2002, with updates approved by the Committee in

December 2003 to ensure compliance with the latest version of the

CIPFA Code (2003).

1.3

The 2003 CIPFA Code refers to the need for a high level strategy that

outlines how the Internal Audit service will be delivered and developed,

and for there to be a risk based periodic plan that sets out how the

strategy is to implemented.

1.4

The Strategic Audit Plan sets out the scope, conduct and timing of

internal audit work for the three year period from 2004/2005 to

2006/2007.

The Strategic Audit Plan is reviewed each year so that it

can be amended to reflect changing priorities and meet the emerging

needs of the Council.

Purpose and Objectives

2.1

The purpose of the Strategic Audit Plan is to:

•

identify all the areas of Council activity that require auditing over the

three year period;

•

state how the Council’s key internal control systems, corporate

governance arrangements and risk management processes will be

reviewed;

•

state how the service will be provided, and establish the resources

and skills required to meet audit objectives;

•

set out the relative allocation of resources between the work to

obtain assurance on the internal control systems and any work to

provide advice; and

•

assist the overall control and direction of the work.

2.2

The Strategic Audit Plan has been drawn up with the following

objectives:

•

to undertake audits of key financial systems on a cyclical basis;

•

to examine the main departmental systems at least once within the

three year cycle;

•

to show how the assurance for the annual control statement will be

demonstrated;

•

to audit high risk areas every year,

•

to undertake Value for Money (VFM) studies;

•

to undertake EMAS audits;

•

to provide advice on corporate management activities such as Best

Value, Risk Management, Corporate Governance and Performance

Management; and to scrutinise their development within the Council;

•

to carry out a programme of specialist contract and computer audits;

•

to meet management requirements for special investigations;

•

to provide advice to managers on financial and control issues; and

•

to include an element of contingency to cover assignments that could

not reasonably have been foreseen.

2.3

Since April 2001, the Audit Commission District Audit has not required a

programme of managed audits, but the Audit Commission places

reliance on Internal Audit coverage of a programme of audits of key

financial systems, and requires assurance that adequate testing of the

systems has been undertaken.

2.4

The Council’s statement of accounts for 2002/2003 included for the first

time a statement on the system of internal financial control as

recommended by CIPFA. The overall statement on internal control is

completed by the Director of Finance and Community Services but it

includes elements prepared by the Chief Internal Auditor, which outline

the role of Internal Audit and give an independent opinion on the

adequacy and effectiveness of the system of internal financial control.

That opinion is based upon Internal Audit’s reviews of key financial

systems, and is reported first to the Audit Committee as part of the Chief

Internal Auditor’s Annual Report that is submitted in June each year.

2.5

The Computer Audit coverage includes resource provision for the

Implementation of New Systems. This is to enable Internal Audit to

comment on the procedures and controls associated with new systems,

to provide input to the project teams or to comment on system

specifications.

The major system developments that are imminent

include a Personnel and Payroll system.

2.6

The entry for Environmental Audit is a summary of the three-year

programme of audits that has been separately agreed with the EMAS

Verifier.

The summary entry is included to obtain Audit Committee

approval for the resources assigned to this work.

2.7

With the Audit Commission acting as facilitator, the Council is

implementing a Risk Management Strategy that is enabling the

introduction of adequate risk management systems.

Internal Audit will

advise on the development of risk management processes across the

Council, and will review their adequacy. In addition, Internal Audit is

committed to ensuring that the audit planning process is consistent with

the new strategy, and the Strategic Plan includes provision for a mid

year review to introduce any changes that may be required.

The

planned work means that in 2004/2005 the resource allocation for the

audit is larger than normal.

2.8

Internal Audit will support the work of the Corporate Performance Officer

by reviewing the adequacy and effectiveness of performance

management procedures.

Internal Audit will also assist in the

development of Corporate Governance systems by providing advice

and reviewing progress as appropriate.

2.9

The Strategic Audit Plan reflects the Review Board structure of the

Council.

It is not expected that any further re-organisation of political

structures will affect the auditing of main services and systems.

Preparation of the Strategic Plan

Review of Key Council Activities

3.1

The first stage in the strategic planning process is the review of the

database of all the key areas of Council activity that require to be

audited.

The review of Council activities is based on previous Strategic

Audit Plans, the budget book, Annual Performance Plan, Strategies and

Service Plans, Audit Commission management letters, Cabinet and

Review Board reports and known developments.

Application of the Risk Assessment Model

4.1

The second stage in the planning process is to use the database to

assess the risks in each area of activity. A revised risk model has been

introduced for this Strategic Audit Plan, which assesses each activity

under six categories: financial materiality, system stability, sensitivity,

complexity, inherent risk and the adequacy of internal control.

Each

category is scored on a scale from 1 to 9, with the greater risks

receiving the higher scores.

The total score for each activity determines

the frequency of audit coverage.

Audits are assigned to one of three

frequency bandings: High (audited every year), Medium (every other

year) and Low (no more than once every three years).

4.2

One audit, Housing Benefits, has been classified as High risk because

the risk assessment model has taken account of recommendations by

the Benefit Fraud Inspectorate.

4.3

Some other areas of Council activity are scheduled for review every

year, although they are not subject to the same risk assessment

process.

These areas include the performance related activities that

form a significant part of the government’s modernisation agenda for

local authorities (see Paragraph 5.2) and ongoing activities such as the

support to the Audit Committee, Follow Up and Liaison with the Audit

Commission.

4.4

A further review has been carried out for those audits in the Low

banding.

Certain areas of activity are assessed as having minimal risk,

and have been excluded from the programme of audits in the Strategic

Audit Plan. These activities remain part of the database of potential

audits and will be reassessed as part of next year’s Strategic Audit Plan.

A list of the thirteen audits excluded from this plan is given at Appendix

Review of Staff Resources

5.1

The third stage in the planning process is the review of available staff

resources. The Internal Audit function is provided internally, and the

staffing of Internal Audit is as approved by the Council on 23 February

2000. The Strategic Audit Plan assumes full staffing of the Internal Audit

team will be maintained for the three-year period of the plan.

Allowing

for these factors, the staffing is assessed at the level necessary to

ensure audit coverage of the key areas within the three-year cycle.

5.2

Internal Audit forms part of the Audit and Performance Division that is

responsible for a wide range of performance related activities. These

activities include:

•

Performance Management

•

Best Value Reviews

•

Corporate Governance

•

Risk Management

•

Procurement

•

Asset Management

5.3

The staffing of the Corporate Performance function reflects the addition

of the post of Corporate Performance Assistant following Cabinet

approval on 4 September 2002. The Audit and Performance Division

has been at its approved staffing complement since October 2002.

5.4

The structure of the Division is as follows:

5.5

The increase in the workload in corporate activities has required the

Chief Internal Auditor to allocate less of his time to audit matters. The

Strategic Audit Plan includes an 80/20 apportionment of the Chief

Internal Auditor’s time between Corporate Performance and Internal

Audit activities.

5.6

The Principal Audit Manager, Senior Auditors and Audit Assistant are

dedicated to audit work.

This separation of responsibilities preserves

the integrity and independence of Internal Audit, and also enables them

to audit and advise on the Corporate Performance activities. This work

is presented in the Strategic Audit Plan under the heading Performance

and Management Scrutiny, which also includes the provisions for the

VFM Reviews.

Summary of Resource Allocation for the Audit Plan

6.1

Table 1 summaries the resources allocated to main audit areas in the

three years 2004/2005 to 2006/2007.

This resource allocation is the

actual time available to perform audit work after making provision for

administration, training, leave and sickness.

AUDIT AND PERFORMANCE DIVISION

SENIOR AUDITORS

Two posts

AUDIT ASSISTANT

P/T (22hrs. per week)

PRINCIPAL AUDIT MANAGER

CORPORATE PERFORMANCE

ASSISTANT

P/T (15 hrs. per week)

CORPORATE PERFORMANCE OFFICER

CHIEF INTERNAL AUDITOR

Table 1: Summary of Strategic Audit Plan for 2004/2005, 2005/2006 and 2006/2007

Year

2004/2005

2005/2006

2006/2007

Audit Area

Audit Days

Main Systems

110

125

Central Systems

Departmental Systems

170

160

Performance and Management Scrutiny

105

100

Computer Audit

Contract Audit

Environmental Audit

Management Responsibilities and

Unplanned Audits

175

168

190

Total

741

759

746

6.2

Variations in the resource allocations across the three years reflect the

need to balance audit coverage across the key areas, taking account of

previous audits undertaken and the revised priorities identified by the

strategic planning process. The main reason for the reduced number of

audit days in 2004/2005 is there being two Easter Bank Holidays in the

year.

The corresponding reduction in public holidays in 2005/2006

accounts for the increased audit days compared to 2004/2005.

6.3

The proposed individual audits within the Strategic Audit Plan for the

years 2004/2005 to 2006/2007 are detailed at Appendix 1.

The Annual

Audit Plan for 2004/2005 will be as per the first column of Appendix 1.

Financial Implications

7.1

There are no additional financial implications arising from this report.

Environmental Implications

8.1

I have completed the Environmental Implications Questionnaire and

there are no significant effects as a result of these recommendations.

Appendix 2

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