LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT …...Letter West Yorkshire Fire and Rescue Authority Audit 2009/10 . The Audit Commission is an independent watchdog, driving economy,

WYFRA AUDIT COMMITTEE 4 FEBRUARY 2011 ITEM No

REPORT OF: CHIEF FINANCE OFFICER PURPOSE OF REPORT: TO RECEIVE THE ANNUAL AUDIT LETTER

FOR THE FINANCIAL YEAR 2009/2010 RECOMMENDATION: THAT THE COMMITTEE NOTE THE

CONTENTS OF THE REPORT AND CONSIDER THE RECOMMENDATIONS WHICH MAY BE INCLUDED WITHIN THE REPORT.

LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT DETAILS Exemption Category: Contact Officer: Geoff Maren - Chief Finance Officer

01274 655711 Alison Wood – Finance Manager 01274 655759

Background Papers: Statement of Accounts 2009/2010 Following the completion of the Audit of the Statement of Accounts the Auditors and the Annual Governance Report the Audit Commission presents the annual audit letter to complete the audit process.

1. Introduction 1. The last meeting of the Audit Committee considered the Audit Commission’s

Annual Governance Report and Audit Opinion. Following consideration of this report and presentations from the Chief Finance Officer and the Audit Commission, the Committee approved the letter of representation which was signed by the Chair and delivered to the District Auditor. This completed the Audit process which enabled the District Auditor to issue the Annual Audit Letter.

2. Purpose of the Report

The purpose of the Annual Audit letter is to summarise the findings of the 2009/2010 Audit in relation to the financial statements and the Authority’s arrangements to deliver value for money. The report then presents details of the Audit Fee for 2009/2010.

3 Audit Opinion

The Authority has received an unqualified opinion on both the statement of accounts and value for money.

4 Recommendations Members are asked to note the contents of the Annual Audit Letter

Annual Audit LetterWest Yorkshire Fire and Rescue Authority Audit 2009/10

The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone.

Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies.

As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.

Contents

Key messages ....................................................................................................2Audit opinion and financial statements .........................................................2Value for money............................................................................................2Current and future challenges ......................................................................3

Financial statements and annual governance statement ..............................4Overall conclusion from the audit .................................................................4Significant weaknesses in internal control ....................................................4

Value for money .................................................................................................62009/10 use of resources assessments .......................................................6VFM conclusion ............................................................................................6Approach to local value for money work from 2010/11.................................8

Current and future challenges..........................................................................9Challenges....................................................................................................9Future developments ....................................................................................9

Closing remarks...............................................................................................10

Appendix 1 Audit fees ....................................................................................11

Appendix 2 Glossary ......................................................................................12

Appendix 3 Action plan ..................................................................................13

Audit Commission Annual Audit Letter 1

Key messages

This report summarises my findings from the 2009/10 audit. My audit comprises two elements: the audit of your financial statements (pages 4 to 5);

and my assessment of your arrangements to achieve

value for money in your use of resources (pages 6 to 8).

I have included only significant recommendations in this report. The Authority has accepted these recommendations.

Audit opinion and financial statements 1 I gave an unqualified opinion on the Authority's 2009/10 financial statements on 27 September 2010.

2 The authority prepared the draft financial statements on time and the supporting working were better than last year's. Whilst we did not identify any material errors in the draft accounts, they were amended to correct the accounting treatment of the revaluation of assets. Although we did not require any other amendments to the financial statements, the Authority made a small number of presentational amendments.

3 The Authority has prepared well for the implementation of the new International Reporting Standards from 2010/11 onwards.

Value for money 4 On 27 September 2010, I also gave an unqualified opinion on the Authority's value for money arrangements in 2009/10. Following the new Government's decision in May 2010 to curtail various forms of inspection and assessment, we will not be reporting the scores from our Use of Resources work, but we have used the detailed fieldwork to support the value for money conclusion. The fieldwork did identify that the Authority had sustained the good performance we had observed in previous years, and had made good progress in a number of areas, including financial planning and risk management and using technology to reduce sickness absence.


Current and future challenges 5 The economic downturn continues to have a significant impact on public finances and the bodies that manage them. The impact has been most immediate on Treasury Management through lower interest earned on balances although this has been partly offset by the low interest rates on long-term borrowing. The Authority has stopped recruiting firefighters and is planning to rationalise future fire cover across West Yorkshire on a risk basis. The new Integrated Risk Management Plan which proposes these changes is out for consultation.

6 The Authority has been planning for a downturn in its finances for some time. It has achieved significant efficiencies, including changing its shift patterns and completed fundamental reviews of some of its services. This has meant that West Yorkshire Fire has lived within its means each year, without having recourse to reserves. However, the recent Comprehensive Spending Review proposes a 25 per cent decrease in central government funding for the fire service over the next five years, although this cut is loaded towards 2013/14 and 2014/15 financial years. Officers are working on ways to reduce this risk still further. I have taken the Authority's plans and progress into account in my value for money conclusion and will continue to assess progress during 2010/11 as part of my audit.


Financial statements and annual governance statement

The Authority's financial statements and annual governance statement are an important means by which the Authority accounts for its stewardship of public funds. I gave an unqualified opinion on the Authority's 2009/10 financial statements on 27 September 2010 within the statutory target date.

Overall conclusion from the audit 7 I gave an unqualified opinion on the Authority's 2009/10 accounts.

8 Once again, the Authority produced draft financial statements for audit on time and supported by working papers which had improved since last year. The finance staff also responded promptly to our queries. However, there is still scope to further improve the way the authority quality-assures the financial statements and working papers; this could help to reduce the number of audit queries and make the process more efficient for your staff and ours. We will continue to explore these issues with officers before the start of the 2010/11 final accounts audit.

9 I reported the findings of my audit to the Audit Committee on 10 September 2010. Officers amended all errors which the audit identified and made some presentational amendments to the financial statements. The only substantial change involved correcting the accounting treatment of ’impairments’ (ie some of the accounting entries needed to ensure that fixed assets are shown at their correct values) which reduced the General Fund balance at 31 March 2010 by £500,000.

10 On the 27 September, I also gave an unqualified opinion on the Authority's Whole of Government Accounts return. This is an annual return which public bodies have to make before consolidation by central government departments and later reporting to parliament.

Significant weaknesses in internal control 11 We did not identify any significant weaknesses in your internal control arrangements. However, we recommend that you should make the following improvements to the control framework:

reconcile regularly the payroll system with the financial ledger;


introduce a control to mitigate the risk that high-value journals can be processed without management review; and

complete the process for documenting and monitoring the financial control functions that Kirklees Council carries out for WYFRA.

Recommendation

R1 There are no specific recommendations for the Authority, except to ensure that the detailed recommendations in our Annual Governance Report are implemented.


Value for money

I considered whether the Authority is managing and using its money, time and people to deliver value for money. I assessed your performance against the criteria specified by the Audit Commission and have reported the outcome as the value for money (VFM) conclusion.

2009/10 use of resources assessments 12 At the end of May 2010 the Commission wrote to all chief executives/ chief fire officers to inform them that, following a decision by the new government, work on Comprehensive Area Assessment would stop with immediate effect and the Commission would no longer issue scores for its use of resources assessments.

13 However, I am still required by the Code of Audit Practice to issue a value for money conclusion. I have therefore used the results of the work completed on the use of resources assessment up to the end of May 2010 to inform my 2009/10 conclusion.

14 I report the significant findings from the work I have carried out to support the value for money (VFM) conclusion.

VFM conclusion 15 I assessed your arrangements to achieve economy, efficiency and effectiveness in your use of money, time and people against criteria specified by the Audit Commission. The Audit Commission specifies each year, which Key Lines of Enquiry (KLOE) are the relevant criteria for the VFM conclusion at each audited body.

16 This is a summary of my findings.


Criteria Adequatearrangements?

Managing finances

Planning for financial health Yes

Understanding costs and achieving efficiencies Yes

Financial reporting Yes

Governing the business

Commissioning and procurement Yes

Use of information Yes

Good governance Yes

Risk management and internal control Yes

Managing resources

Natural resources Yes

17 I issued an unqualified conclusion stating the Authority had satisfactory arrangements to secure economy, efficiency and effectiveness in its use of resources.

18 The key findings are the Authority has made progress in several areas including:

achieving some 90 per cent of the 2009/10 capital programme in the year;

completing five fundamental reviews which has released significant efficiencies and resources to invest in command and control;

analysing and responding to the financial challenges facing it, an exercise which began in response to Rising to the Challenge;

reviewing fire cover to meet changing demographics, including closing and opening stations;

developing a new integrated risk management process for Prevention, Protection and Response;

reducing its gas and electricity spend across all five West Yorkshire areas;

exploring ways to reduce its environmental footprint, including more sustainable running on biodiesel and using lighter replacement bodies for fire engines which require less maintenance and down time; and

making good progress in its arrangements for introducing the International Finance Reporting Standards.


Approach to local value for money work from 2010/11 19 Given the scale of pressures facing public bodies in the current economic climate, the Audit Commission has been reviewing its work programme for 2010/11 onwards. This review has included discussions with key stakeholders of possible options for a new approach to local value for money (VFM) audit work. The Commission aims to introduce a new, more targeted and better value approach to our local VFM audit work.

20 I will base our work on fewer reporting criteria, specified by the Commission, concentrating on:

securing financial resilience; and prioritising resources within tighter budgets.

21 I will decide a local programme of VFM audit work based on my audit risk assessment, informed by these criteria and my statutory responsibilities. I will no longer need to provide an annual scored judgement relating to my local VFM audit work. Instead I will report the results of all my local VFM audit work and the key messages for the Authority in my annual report to those charged with governance and in my annual audit letter.


Current and future challenges

Challenges22 The Authority has been successful in improving the quality and cost- effectiveness of its activities over several years but now, in common with many other public bodies, faces the challenge of continuing to deliver efficient and effective fire and rescue services across West Yorkshire with significantly less money. The processes, and the understanding that the Authority and its officers have developed in recent years should provide a good basis for addressing that challenge, but there can be no doubt that the Authority will need to become even better at managing its risks, performance and finances through a lengthy period of austerity.

23 In addition, in common with all other Fire and Rescue organisations in England and Wales, the Authority will need to respond to:

the reversal of the national policy of integrating many of the support services provided by individual FRAs, in favour of less prescriptive local collaboration; and

the Government's decision on the future of Regional Control Centres. It remains unclear if the centre in Wakefield (which is complete but not yet operational) will continue to be part of the future national network.

Future developments24 Future developments include the full implementation of IFRS accounting, including the use of componentisation from 2010/11. Other developments for fire services may arise when the detail of the Comprehensive Public Sector Spending Review is made known by the Coalition government, most likely in December 2010.


Closing remarks

25 I have discussed and agreed the draft letter with the Chief Executive/ Chief Fire Officer and the Chief Finance Officer. The final letter will now be sent to all Authority members.

26 Full detailed findings, conclusions and recommendations in the areas covered by our audit are included in the reports I issued to the Authority during the year.

Report Date issued

Audit Fee Letter April 2009

Annual Governance Report September 2010

Final Accounts Report October 2010

Annual Audit Letter November 2010

27 The Authority has taken a positive and helpful approach to our audit. I wish to thank West Yorkshire Fire Authority staff for their support and cooperation during the audit.

Paul Lundy District Auditor

November 2010


Appendix 1 Audit fees

I sent the original fee letter for 2009/10 to the Authority on 8 April 2009. We have carried out the audit within the planned fee, which was based on the Audit Commission's published fee scale, as shown in the following table.

Table 1:

Acute £ Planned £ Variance £

Financial Statements and Annual Governance Statement

46,415 46,415 -

VFM Conclusion 32,370 32,370 -

Whole of Government Accounts

3,260 3,260 -

Total 82,045 82,045 -


Appendix 2 Glossary

Annual governance statement

Governance is about how local government bodies ensure that they are doing the right things, in the right way, for the right people, in a timely, inclusive, open, honest and accountable manner.

It comprises the systems and processes, cultures and values, by which local government bodies are directed and controlled and through which they account to, engage with and where appropriate, lead their communities.

The annual governance statement is a public report by the Council on the extent to which it complies with its own local governance code, including how it has monitored the effectiveness of its governance arrangements in the year, and on any planned changes in the coming period.

Audit opinion

On completion of the audit of the accounts, auditors must give their opinion on the financial statements, including:

whether they give a true and fair view of the financial position of the audited body and its spending and income for the year in question;

whether they have been prepared properly, following the relevant accounting rules; and

for local probation boards and trusts, on the regularity of their spending and income.

Financial statements

The annual accounts and accompanying notes.

Qualified

The auditor has some reservations or concerns.

Unqualified

The auditor does not have any reservations.

Value for money conclusion

The auditor’s conclusion on whether the audited body has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of money, people and time.


Appendix 3 Action plan

Recommendations

Recommendation 1

There are no specific recommendations for the Authority, except to endure that the detailed recommendations in our Annual Governance Report are implemented.

Responsibility Chief Finance Officer

Priority 3

Date Before 31 March 2011

Comments


If you require a copy of this document in an alternative format or in a language other than English, please call: 0844 798 7070 © Audit Commission 2010. Design and production by the Audit Commission Publishing Team. Image copyright © Audit Commission.

The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to non-executive directors, members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to:

any director/member or officer in their individual capacity; or any third party.

Audit Commission

1st Floor Millbank Tower Millbank London SW1P 4HQ

Telephone: 0844 798 3131 Fax: 0844 798 2945 Textphone (minicom): 0844 798 2946

www.audit-commission.gov.uk November 2010


REPORT OF: CHIEF FINANCE OFFICER PURPOSE OF REPORT: TO PRESENT THREE REPORTS FROM THE

AUDIT COMMISSION ON THE ARRANGMENTS FOR THE AUDIT OF ACCOUNTS 2010/2011.

RECOMMENDATION: THAT THE COMMIITTEE NOTE THE CONTENTS

OF THE THREE REPORTS. LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT DETAILS Exemption Category: Contact Officer: Geoff Maren - Chief Finance Officer

01274 655711 Background Papers: None Following changes of the role of the Audit Commission, the District Auditor has presented three reports on arrangements for the 2010/2011 audit of accounts which are the Draft Audit Plan, the Joint working protocol and Changes to the Audit Opinion. The purpose of the reports is to keep the Committee informed of the arrangements for Auditing the 2010/2011 Statement of Accounts.

1. Introduction

The Audit Commission will remain as the external auditors of the Authority for the financial year 2010/2011. Over the last 12 months there have been some significant changes in both the role of the Audit Commission and the scale of the Audit, particularly with the cancelation of the Comprehensive Area Assessment and the announcement of the abolition of the Audit Commission. The purpose of this report is to present three papers covering: Audit Plan Joint Working Protocol Opinion Audit changes you can expect to see. A brief explanation of each is provided below.

2. Audit Plan

This Document sets out the work that the Audit Commission will undertake in order to deliver an Audit Opinion on the Statement of Accounts and the Authority’s arrangements for providing value for money. The report includes details of: The Auditor’s responsibilities Details of specific risks that have been identified The proposed timetable The Audit Team The basis of the Audit fee

3 Joint Working Protocol- Financial Statements Audit

This document sets out the scope of the Audit work both before the accounts are completed and after the accounts have been completed, and the proposed working arrangement between the Audit Commission and the Fire Authority. It specifically sets out what the Authority can expect from the Auditor and what the Auditor would expect from the Authority and its key officers.

4 2010/11 Opinion Audit – changes you expect to see

As the title suggests this report sets out the changes to the Audit Opinion from 2009/2010 to 2010/2011 and more specifically it covers the changes in the following areas: Journals Related party transactions Accounting estimates Deficiencies in internal control

5 Recommendations Members are asked to note the contents of the attached reports

Audit plan West Yorkshire Fire and Rescue AuthorityAudit 2010/11

Audit Commission Audit plan 1

Contents

Introduction ........................................................................................................2

Responsibilities .................................................................................................3

Fee for the audit .................................................................................................4Specific actions that WYFRA could take to reduce its audit fees .................4

Auditors report on the financial statements....................................................6Materiality .....................................................................................................6Identifying opinion audit risks........................................................................6

Identification of specific opinion audit risks ...................................................7

Testing strategy .................................................................................................8

Value for money conclusion .............................................................................9 Value for money risks .........................................................................9

Key milestones and deadlines........................................................................10

The audit team..................................................................................................11Independence and objectivity .....................................................................11Meetings .....................................................................................................11Quality of service ........................................................................................11Planned outputs..........................................................................................12

Appendix 1 Basis for fee ................................................................................13Assumptions ...............................................................................................13

Appendix 2 Independence and objectivity ...................................................14

Appendix 3 Working together ........................................................................16Meetings .....................................................................................................16Sustainability...............................................................................................16

Appendix 4 Glossary ......................................................................................17


Introduction

This plan sets out the audit work that I propose to undertake for the audit of financial statements and the value for money conclusion 2010/11. 1 The plan is based on the Audit Commission’s risk-based approach to audit planning. It reflects:

audit work specified by the Audit Commission for 2010/11; current national risks relevant to your local circumstances; and your local risks.


Responsibilities

The Audit Commission’s Statement of Responsibilities of Auditors and of Audited Bodies sets out the respective responsibilities of the auditor and the audited body. The Audit Commission has issued a copy of the Statement to every audited body. 2 The Statement summarises where the different responsibilities of auditors and of the audited body begin and end and I undertake my audit work to meet these responsibilities.

3 I comply with the statutory requirements governing our audit work, in particular, the:

Audit Commission Act 1998; and Code of Audit Practice.


Fee for the audit

The fee for the audit is £87,150, as indicated in my letter of 22/04/10.4 The Audit Commission's fee for the 2010/11 audit of West Yorkshire Fire Authority is £87,150. The fee proposed is the unadjusted scale fee, as I have assumed for planning purposes that the audit will not be unusually complex or straightforward.

5 The Commission wrote to all audited bodies, on 9 August, about its proposed new arrangements for local value for money audit work. This indicated the impact on audit fees for 2010/11 would be considered as part of the Commission’s consultation on its work programme and scales of fees for 2011/12, planned for September. In light of the Secretary of State’s announcement on the government’s intention to abolish the Commission, this consultation has been delayed.

6 In setting the fee, I have assumed that: the level of risk in relation to the audit of accounts is consistent with

that for 2009/10; you will inform us of significant developments impacting on our audit; good quality, accurate working papers and records will be provided in

electronic format to support the financial statements by 30 June 2011 at the latest;

the Authority will supply good quality working papers to support the restatement of 2009/10 balances to comply with International Financial Reporting Standards (IFRS) by 31 March 2011 at the latest;

Internal Audit meets the appropriate professional standards; and Internal Audit undertakes appropriate work on all material systems and

this is available for our review by 30 April 2011.

7 Where these assumptions are not met, I will be required to undertake additional work which is likely to result in an increased audit fee. Where this is the case, I will discuss this in the first instance with the Chief Finance Officer. I will issue supplements to the plan to record any revisions to the risk and the impact on the fee.

8 Further information on the basis for the fee is set out in Appendix 1.

Specific actions that West Yorkshire Fire and Rescue Authority could take to reduce its audit fees 9 The Audit Commission requires its auditors to inform audited bodies of any specific actions that it could take to reduce the audit fee. As the Authority already achieves the standard of performance that underpins the fee scale, there are no specific actions to draw to your attention. However,


as in previous years, I am working with your staff to identify any further actions that might make the preparation of the accounts, and therefore the audit, more efficient.


Auditors report on the financial statements

I will carry out the audit of the financial statements in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board (APB).10 I am required to issue an audit report giving my opinion on whether the accounts give a true and fair view of the financial position of the Authority as at 31 March 2011.

Materiality 11 I will apply the concept of materiality in both planning and performing the audit, in evaluating the effect of any identified misstatements, and in forming my opinion.

Identifying opinion audit risks 12 I need to understand fully the audited body to identify any risk of material misstatement (whether due to fraud or error) in the financial statements. I do this by:

identifying the business risks facing the Authority, including assessing your own risk management arrangements;

considering the financial performance of the Authority; assessing internal control - including reviewing the control environment,

the IT control environment and Internal Audit; and assessing the risk of material misstatement arising from the activities

and controls within the Authority's information systems.


Identification of specific opinion audit risks

I have considered the additional risks that are appropriate to the current opinion audit and have set these out below.

Table 1: Specific risks Specific opinion risks identified

Risk area Audit response

The IFRS re-stated balances at 31 March 2010.

We will hold regular meetings with you to resolve any significant IFRS issues and review the re-stated balances before 31 March 2011.

The 2010/11 financial statements which will be prepared on an IFRS basis for the 1st time.

We will review the financial statements and give an opinion on them before 30 September 2011.

Consistency of Financial Statements.

We will ensure that the accounts accord with the 2010 IFRS Code and that they are internally consistent ie the notes agree with the main statements.

Accounting for capital transactions and impairments

This has been a problem area in past audits. We will ensure that the correct accounting treatment has been followed for capital transactions and impairments.

Controls in systems provided by Kirklees Council.

This too has been a problem area in past audits; specifically the documentation and evidencing of the controls exercised within WYFRS over data that is transferred to/from Kirklees Council. We will check that WYFRS has now implemented and documented appropriate "boundary controls" and that there is evidence that they are operating satisfactorily.

The preparation of the Cash Flow Statements

We identified amendments to the 2009/10 Cash Flow Statement. As the 2010 IFRS Code has changed the format of the Statement, it remains an audit risk. We will ensure that the Statement has been properly compiled from figures in the financial statements and that it follows the revised disclosure requirements.

Financial Instruments and Fair Value.

We will review the approach in ISA (UK&I) Auditing Fair Value and Accounting Disclosures to ensure that fair value has been accounted for correctly.


Testing strategy

On the basis of risks identified above I will produce a testing strategy which will consist of testing key controls and/or substantive tests of transaction streams and material account balances at year end. 13 I can carry out the testing both before and after the draft financial statements have been produced (pre- and post-statement testing).

14 Wherever possible, I will complete some substantive testing earlier in the year before the financial statements are available for audit. I have identified the following areas where substantive testing could be carried out early.

Review of accounting policies Bank reconciliation Investments – ownership Year-end feeder system reconciliations Journals testing Review of Annual Governance Statement Testing of any fixed asset disposals and acquisitions Contingent liabilities

Where I identify other possible early testing, I will discuss it with officers.

15 Wherever possible, I will seek to rely on the work of Internal Audit to help meet my responsibilities. For 2010/11, I expect to be able to use the results of their reviews of systems controls for payroll, debtors and creditors.

16 I will also seek to rely on the work of other auditors and experts, as appropriate, to meet my responsibilities. For 2010/11, I plan to rely on the work of other auditors for the FRS 17 and pensions disclosures in the financial statements.

17 I also plan to rely on the work of experts employed by management in the following areas:

Actuarial information for FRS 17 pension purposes. This will be the Government's Actuarial Department (GAD) for Fire-fighters and the Actuary for West Yorkshire Pensions Fund (Hewitt Associates) for other staff.

GVA Grimley for fixed asset valuations and the value of any impairments.


Value for money conclusion

I am required to give a statutory VFM conclusion on the Authority's arrangements to secure economy, efficiency and effectiveness. 18 This is based on two criteria, specified by the Commission, related to your arrangements for:

securing financial resilience – focusing on whether the Authority is managing its financial risks to secure a stable financial position for the foreseeable future; and

challenging how the Authority secures economy, efficiency and effectiveness – focusing on whether the FRA is prioritising its resources within tighter budgets and improving productivity and efficiency.

Value for money risks 19 The focus of my work to give the value for money conclusion this year is different to the approach in recent years, and will focus more heavily on financial planning and the actions that the Authority is taking to re-shape services with reducing income. I have not identified any specific risks to my ability to reach a correct conclusion, but I will write to you again if this changes after the detailed discussion I will be having with the Management Board on 24 January 2011.


Key milestones and deadlines

The Authority is required to prepare the financial statements by 30 June 2011. I am required to complete the audit and issue the opinion and value for money conclusion by 30 September 2011. 20 The key stages in producing and auditing the financial statements are in Table 2.

21 I will agree with you a schedule of working papers required to support the entries in the financial statements. The agreed fee is dependent on the timely receipt of accurate working papers.

22 Every week, during the audit, the audit team will meet with the key contact and review the status of all queries. I can arrange meetings at a different frequency depending on the need and the number of issues arising.

Table 2: Proposed timetable

Activity Date

Control and early substantive testing January - March 2011

Receipt of accounts end June 2011

Sending audit working papers to the auditor end June 2011

Start of detailed testing early July 2011

Progress meetings on the audit Quarterly

Present report to those charged with governance at the audit committee

end September 2011

Issue opinion and value for money conclusion By 30 September 2011


The audit team

Table 3 shows the key members of the audit team for the 2010/11 audit.

Table 3: Audit team

Name Contact details Responsibilities

Paul Lundy District Auditor

[email protected] 0844 798 7145

Responsible for the overall delivery of the audit including the quality of outputs, signing the opinion and conclusion, and liaison with the Chief Executive/Chief Fire Officer.

Graham Kettles Audit Manager

[email protected] 0844 798 7162

Manages and coordinates the different elements of the audit work. Key point of contact for the Chief Finance Officer.

Independence and objectivity 23 I am not aware of any relationships that may affect the independence and objectivity of the District Auditor and the audit staff, which I am required by auditing and ethical standards to communicate to you.

24 I comply with the ethical standards issued by the APB and with the Commission’s requirements in respect of independence and objectivity as summarised in Appendix 2.

Meetings25 The audit team will ensure we have knowledge of your issues to inform our risk-based audit through regular liaison with key officers. Our proposals are set out in Appendix 3.

Quality of service 26 I aim to provide you with a fully satisfactory audit service. If, however, you are unable to deal with any difficulty through me and my team please contact Chris Westwood, Director of Professional Practice, Audit Practice, Audit Commission, 1st Floor, Millbank Tower, Millbank, London SW1P 4HQ ([email protected]) who will look into any complaint promptly and do what he can to resolve the position.


27 If you are still not satisfied, you may of course take up the matter with the Audit Commission’s Complaints Investigation Officer (The Audit Commission, Westward House, Lime Kiln Close, Stoke Gifford, Bristol BS34 8SR).

Planned outputs 28 My team will discuss and agree reports with the right officers before issuing them to the Audit Committee.

Table 4: Planned outputs

Planned output Indicative date

External Audit Plan December 2010

Annual governance report September 2011

Auditor’s report giving an opinion on the financial statements

September 2011

Final accounts memorandum, if required October 2011

Annual audit letter November 2011


Appendix 1 Basis for fee

The Audit Commission is committed to targeting its work where it will have the greatest effect, based upon assessments of risk and performance. This means planning work to address areas of risk relevant to our audit responsibilities and reflecting this in the audit fees.

The risk assessment process starts with the identification of the significant financial and operational risks applying to the Authority with reference to:

my cumulative knowledge of the FRA; planning guidance issued by the Audit Commission; the specific results of previous and ongoing audit work;

interviews with Authority officers; and liaison with Internal Audit.

AssumptionsIn setting the fee, I have assumed that:

the level of risk in relation to the audit of the financial statements is not significantly different from that identified for 2009/10;

the fee for the value for money conclusion is the same as for 2009/10 you will inform me of significant developments impacting on the audit; Internal Audit meets the appropriate professional standards; Internal Audit undertakes appropriate work on all systems that provide

material figures in the financial statements sufficient that I can place reliance for the purposes of our audit;

you provide: good quality working papers and records to support the financial statements by 30 June 2011; information asked for within agreed timescales; prompt responses to draft reports; and

there is no allowance for extra work needed to address questions or objections raised by local government electors.

Where these assumptions are not met, I will be required to undertake additional work which is likely to result in an increased audit fee.


Appendix 2 Independence and objectivity

Auditors appointed by the Audit Commission are required to comply with the Commission’s Code of Audit Practice and Standing Guidance for Auditors, which defines the terms of the appointment. When auditing the financial statements, auditors are also required to comply with auditing standards and ethical standards issued by the Auditing Practices Board (APB).

The main requirements of the Code of Audit Practice, Standing Guidance for Auditors and the standards are summarised below.

International Standard on Auditing (UK and Ireland) 260 (Communication of audit matters with those charged with governance) requires that the appointed auditor:

discloses in writing all relationships that may bear on the auditor’s objectivity and independence, the related safeguards put in place to protect against these threats and the total amount of fee that the auditor has charged the client; and

confirms in writing that the APB’s ethical standards are complied with and that, in the auditor’s professional judgement, they are independent and their objectivity is not compromised.

The standard defines ‘those charged with governance’ as ‘those persons entrusted with the supervision, control and direction of an entity’. In your case, the appropriate addressee of communications from the auditor to those charged with governance is the Audit Committee. The auditor reserves the right, however, to communicate directly with the Authority on matters which are considered to be of sufficient importance.

The Commission’s Code of Audit Practice has an overriding general requirement that appointed auditors carry out their work independently and objectively, and ensure that they do not act in any way that might give rise to, or could reasonably be perceived to give rise to, a conflict of interest. In particular, appointed auditors and their staff should avoid entering into any official, professional or personal relationships which may, or could reasonably be perceived to, cause them inappropriately or unjustifiably to limit the scope, extent or rigour of their work or impair the objectivity of their judgement.

The Standing Guidance for Auditors includes a number of specific rules. The key rules relevant to this audit appointment are as follows.

Appointed auditors should not perform additional work for an audited body (ie work over and above the minimum required to meet their statutory responsibilities) if it would compromise their independence or might give rise to a reasonable perception that their independence could be compromised. Where the audited body invites the auditor to carry out risk-based work in a particular area that cannot otherwise be


justified as necessary to support the auditor’s opinion and conclusions, it should be clearly differentiated within the Audit and Inspection Plan as being ‘additional work’ and charged for separately from the normal audit fee.

Auditors should not accept engagements that involve commenting on the performance of other auditors appointed by the Commission on Commission work without first consulting the Commission.

The District Auditor responsible for the audit should, in all but the most exceptional circumstances, be changed at least once every seven years, with additional safeguards in the last 2 years.

The District Auditor and senior members of the audit team are prevented from taking part in political activity on behalf of a political party, or special interest group, whose activities relate directly to the functions of local government or NHS bodies in general, or to a particular local government or NHS body.

The District Auditor and members of the audit team must abide by the Commission’s policy on gifts, hospitality and entertainment.


Appendix 3 Working together

MeetingsThe audit team will ensure that we have knowledge of your issues to inform our risk-based audit through regular liaison with key officers.

My proposal for the meetings is as follows.

Table 5: Proposed meetings with officers

Councilofficers

AuditCommission staff

Timing Purpose

Chief Finance Officer

AM and Team Leader (TL)

January, March, July, September

General update plus: January - audit plan March - systems progress July - accounts progress September - annual governance report

Audit Committee

DA and AM, with TL as appropriate

As determined by the Committee cycle.

Formal reporting of: Audit Plan Annual governance report Other issues as appropriate

Sustainability The Audit Commission is committed to promoting sustainability in our working practices and I will actively consider opportunities to reduce our impact on the environment. This will include:

reducing paper flow by encouraging you to submit documentation and working papers electronically;

use of video and telephone conferencing for meetings as appropriate; and

reducing travel.


Appendix 4 Glossary

Annual audit letter

Report issued by the auditor to an audited body that summarises the audit work carried out in the period, auditors’ opinions or conclusions (where appropriate) and significant issues arising from auditors’ work.

Audit of the accounts

The audit of the accounts of an audited body comprises all work carried out by auditors in accordance with the Code to meet their statutory responsibilities under the Audit Commission Act 1998.

Audited body

A body to which the Audit Commission is responsible for appointing the external auditor, comprising both the members of the body and its management (the senior officers of the body). Those charged with governance are the members of the audited body. (See also ‘Members’ and ‘Those charged with governance’.)

Auditing Practices Board (APB)

The body responsible in the UK for issuing auditing standards, ethical standards and other guidance to auditors. Its objectives are to establish high standards of auditing that meet the developing needs of users of financial information and to ensure public confidence in the auditing process.

Auditing standards

Pronouncements of the APB, which contain basic principles and essential procedures with which auditors are required to comply, except where otherwise stated in the auditing standard concerned.

Auditor(s)

Auditors appointed by the Audit Commission.

Code (the)

The Code of Audit Practice.

Commission (the)

The Audit Commission for Local Authorities and the National Health Service in England.


Directors

Members of the board who are collectively and individually responsible for the overall direction and control of the audited body. In NHS bodies there is a unitary board, consisting of executive members and part-time non-executive members, chaired by a non-executive member. The chief executive is responsible to the board for the day-to-day management of the organisation but, as accountable officer, is also responsible to the Department of Health for the proper stewardship of public money and assets. (See also ‘Those charged with governance’ and ‘Audited body’).

Ethical Standards

Pronouncements of the APB that contain basic principles that apply to the conduct of audits and with which auditors are required to comply, except where otherwise stated in the standard concerned.

Financial statements

The annual statement of accounts or accounting statements that audited bodies are required to prepare, which summarise the accounts of the audited body, in accordance with regulations and proper practices in relation to accounts.

Internal control

The whole system of controls, financial and otherwise, that is established in order to provide reasonable assurance of effective and efficient operations, internal financial control and compliance with laws and regulations.

Materiality (and significance)

The APB defines this concept as ‘an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. A matter is material if its omission would reasonably influence the decisions of an addressee of the auditor’s report; likewise a misstatement is material if it would have a similar influence. Materiality may also be considered in the context of any individual primary statement within the financial statements or of individual items included in them. Materiality is not capable of general mathematical definition, as it has both qualitative and quantitative aspects’.

The term ‘materiality’ applies only in relation to the financial statements. Auditors appointed by the Commission have responsibilities and duties under statute, in addition to their responsibility to give an opinion on the financial statements, which do not necessarily affect their opinion on the financial statements.

The concept of ‘significance’ applies to these wider responsibilities and auditors adopt a level of significance that may differ from the materiality level applied to their audit in relation to the financial statements. Significance has both qualitative and quantitative aspects.


Members

The elected, or appointed, members of local government bodies who are responsible for the overall direction and control of the audited body. (See also ‘Those charged with governance’ and ‘Audited body’.)

Regularity (of expenditure and income)

Whether, subject to the concept of materiality, the expenditure and income of the audited body have been applied for the purposes intended by parliament, and whether they conform with the authorities that govern them.

Remuneration report

Audited bodies are required to produce, and publish with the financial statements, a remuneration report that discloses the salary and pension entitlements of senior managers.

Statement on internal control/Annual Governance Statement

Local government bodies are required to publish a statement on internal control (SIC) with their financial statements (or with their accounting statements in the case of small bodies). The disclosures in the SIC are supported and evidenced by the body’s assurance framework. At local authorities the SIC is known as the Annual Governance Statement and is prepared in accordance with guidance issued by CIPFA. Police authorities also produce a SIC in accordance with relevant CIPFA guidance. Local probation trusts are required to prepare a SIC in accordance with the requirements specified by HM Treasury in Managing Public Money.

NHS bodies are required to publish a statement on internal control (SIC) with their financial statements. Specific guidance on the preparation of the SIC is issued by the Department of Health. The chief executive, as accountable officer, is required to sign the SIC on behalf of the board. The disclosures in the SIC are supported and evidenced by the body’s assurance framework.

Those charged with governance

Those charged with governance are defined in auditing standards as ‘those persons entrusted with the supervision, control and direction of an entity’.

In local government bodies, those charged with governance, for the purpose of complying with auditing standards, are:

for local authorities – the full council, audit committee (where established) or any other committee with delegated responsibility for approval of the financial statements;

for police or fire authorities – the full authority, audit committee (where established) or other committee with delegated responsibility for approval of the financial statements;

for local probation boards and trusts – the board or audit committee; and


for other local government bodies – the full authority or board or council, audit committee (where established) or any other committee with delegated responsibility for approval of the financial statements

Audit committees are not mandatory for local government bodies, other than police authorities and local probation trusts. Other bodies are expected to put in place proper arrangements to allow those charged with governance to discuss audit matters with both internal and external auditors. Auditors should satisfy themselves that these matters, and auditors’ reports, are considered at the level within the audited body that they consider to be most appropriate.

In NHS bodies, those charged with governance, for the purpose of complying with auditing standards, are the board of directors and, in respect of certain responsibilities, the audit committee on behalf of the board. Audit committees are mandatory in NHS bodies and are non-executive committees of the board. The main objective of the audit committee is to contribute independently to the board’s overall process for ensuring that an effective internal control and risk management system is maintained.

Whole of Government Accounts

The Whole of Government Accounts initiative is to produce a set of consolidated financial accounts for the entire UK public sector on commercial accounting principles. Local government bodies, other than probation boards and trusts, are required to submit a consolidation pack to the department for Communities and Local Government which is based on, but separate from, their statutory accounts.

Joint Working Protocol - FinancialStatements audit West Yorkshire Fire and Rescue Authority 2010/11

Audit Commission Joint Working Protocol - Financial Statements audit 1

Contents

Joint Working Protocol .....................................................................................2Introduction ...................................................................................................2Audit approach..............................................................................................2Pre-statements audit.....................................................................................3Post-statements audit ...................................................................................4What we expect from you .............................................................................4What I expect from you.................................................................................5What can you expect from me and my team ................................................6Way forward..................................................................................................6

Appendix 1 – Schedule of Meetings.................................................................9

Appendix 2 – Key Officer Contacts ................................................................10

Appendix 3 – Audit Commission staff ...........................................................11


Joint Working Protocol

Introduction 1 My main objective as your appointed auditor is to plan and carry out an efficient opinion audit that meets the requirements of the Audit Commission's Code of Audit Practice (the Code). I adopt a risk-based approach to planning the audit, and my audit work focuses on the risks that are relevant to my audit responsibilities under the Code. I issue an audit opinion on whether your financial statements fairly state your financial position and transactions for the year ended 31 March 2011.

2 I recognise that to achieve these objectives, we need to work together effectively. We need good communication throughout the year to identify and resolve issues early and be flexible enough to manage developments as they arise. This document reflects my commitment to promote productive joint working between my audit team and your finance team.

Audit approach 3 To support effective joint working I think it would be helpful to explain my approach to delivering your audit. Table 1 shows a summary of my approach and my proposed timetable.

Table 1: Summary of my audit approach I adopt a two-stage approach

Stage Procedures Timing

1. Pre-statements Documenting and walking through your material information systems. Testing the key controls within these systems, including where possible, reviewing the work of internal audit. Evaluating your control environment including assessing general information technology (IT) controls. Carrying out testing before the year-end on material balances that you expect to be included in the financial statements. Reviewing the 09/10 restated balances on an IFRS basis

From 4 January 2011- 31 March 2011


2. Post-statements

Testing the material balances and notes within your financial statements.

From late June 2011 - late August 2011

4 My team will work closely with you throughout the opinion audit. I include a table at Appendix 1 showing the meetings scheduled throughout the year. These reflect the good arrangements that applied during the previous audit period.

Pre-statements audit

Documenting and walking through your systems

5 I use the pre-statements stage of the audit to gain an understanding of the information systems that you use to produce the material figures within the financial statements. I am required to do this by auditing standards - ISAs (International Standards on Auditing in the UK and Ireland). However, this understanding enables me to focus my audit on relevant matters. It also enables me to highlight to you any significant weaknesses in how these systems produce materially accurate figures for the financial statements.

6 To achieve this I document my understanding of your material information systems and undertake a 'walk through test'. The walk through test entails tracing a single transaction through the system, from initiation to completion. I am required by auditing standards to do this each year. However, where I have gained an understanding of a system in one year and you have confirmed that there have been no changes to that system I simply walk through the system to confirm my understanding.

Identifying and testing key controls

7 Having documented my understanding of your material information systems I then consider the controls within each system that are key to ensuring the outputs are materially accurate. I call these key controls.

8 Testing that these key controls are operating effectively provides me with assurance that there is a reduced risk that your financial statements are free from material error. It also enables me to report to you any deficiencies in your system of internal control.

9 Wherever possible I will seek to rely on the work undertaken by Internal Audit in respect of your key controls. My team meets with internal audit to discuss the scope and timing of our respective audit plans. This includes, identifying the key controls within each material information system. If I do seek to place reliance on Internal Audit I will review and evaluate their work.


Control environment and Information Technology (IT) controls

10 I consider the strength of your control environment and general IT controls in assessing the risk that your financial statements are free from material misstatement.

11 As part of the pre-statements audit, I consider and document the control environment in which you operate. For example, I will discuss with management and the Audit Committee (as those charged with governance) the arrangements that the Authority has in place for issues including fraud, governance and complying with laws and regulations, and seek written confirmation of the arrangements.

12 In addition, I also evaluate and test your general IT controls, such as access controls within your material information systems.

Early testing of material balances and notes

13 I am aware that the post-statements stage of my audit falls during a busy period for your finance team and I aim to reduce, as far as possible, the extent of audit work I need to carry out on your financial statements at that time.

14 During the pre-statements audit, I will agree with your finance team, any aspects of your financial statements that will be known before the year-end. For example, I can test any in-year material additions or disposals of property, plant and equipment rather than test them at the year-end.

Post-statements audit 15 At the post statements stage of the audit I focus my work on testing of the material balances and notes within your financial statements. The extent of this testing is determined in part by the results of the pre-statements testing.

16 My assessment will also take into account a number of factors including the materiality of the item, political sensitivity, known problems from previous years, any findings from Internal Audit and any changes in accounting practice and the Statement of Recommended Practice (SORP). As a result, the work undertaken and requests for further information may differ to previous years. However, I will ensure that I provide the finance team with an outline timetable of when auditors will be reviewing which aspects of the financial statements.

What we expect from you

Obtaining external confirmations

17 There will be instances where the most appropriate effective method of obtaining audit evidence is by obtaining external confirmations. External confirmations are most commonly used with regards to the confirmation of balances. Examples of where I use them include.

bank balances and other information from bankers


investments loans from lending institutions.

18 You will need to give permission to the following third parties to release information which will be requested by me in due course:

Co-op Bank for confirmation of the year end bank balances.

Reporting

19 I am required by auditing standards to report the results of my work to the Audit Committee as those charged with governance. I do this in the Annual Governance Report. This report will include only the significant findings identified from my audit work. If necessary, I will report more detailed findings and recommendations from my audit of the financial statements in a separate final accounts report.

What I expect from you 20 I have outlined to you my audit approach so that you know what to expect from me and my audit team. To deliver an effective and efficient audit our respective teams need to work collaboratively. The following paragraphs outline my expectations from you.

access to key finance staff (as listed in Appendix 2); notification of when key staff are unavailable; fast resolution of audit queries and issues (this would ordinarily be

within 2 working days); relevant and available working papers in accordance with your

closedown timetable. Working papers should be: cross referenced to all accounting systems and other sources of information where possible; clearly labelled and headed; accompanied by clear audit trails to individual transactions making up the balance; signed and dated; and ideally provided in an electronic format.

21 I recommend that you include all balances over £1.9m in the working paper files, with supporting documentation for any transactions over £1.6m. As part of the post statements audit I may request further ‘drilling down’ into transaction listings for testing. Finance staff should ensure that this information is retained and is readily available.

22 I also recommend that you provide these working papers at the beginning of the post statements audit. This will reduce the time that finance staff have to spend dealing with audit queries. Any delays in the provision of adequate working papers or in the resolution of queries will impact on the audit programme and may lead to a delay in issuing the opinion and a potential increase in the fee that I have agreed for the audit.


What can you expect from me and my team 23 You can expect the following:

a set of working paper guidelines for the post statements audit (this will be sent to you in January 2011);

a schedule of all audit errors and uncertainties arising from my work; regular audit liaison to discuss matters arising from the audit; and during the post statements audit, weekly liaison from the audit manager

to discuss the progress of the audit, unresolved queries etc using a weekly report to track agreed actions.

24 My team and I will raise matters of urgency promptly if issues could have an adverse impact on the audit opinion or the Annual Governance Report.

25 I have proposed a timetable (see Appendix 1) to enable me to issue an Annual Governance Report to the Chief Finance Officer and to the Audit Committee (dates to be confirmed). This will allow sufficient time for the Authority to respond to any matters. Subject to gaining sufficient assurance from my audit testing, I aim to give my opinion in sufficient time to enable the Authority to publish the audited accounts by the deadline of 30 September 2011.

Way forward 26 I have prepared this protocol to improve the way my audit is delivered and reduce the load on your finance team in preparing the financial statements and responding to auditor queries. I recommend that you share this protocol with finance staff who are responsible for compiling working papers and responding to audit requirements.

27 If you have any queries about the working papers requested, or the contents within this protocol, please contact your Audit Manager (see Appendix 3 for contact details).


Appendix 1 – Schedule of Meetings

The following schedule of meetings is not an exhaustive list but highlights the likely meetings between us and (insert AB name) throughout the year:

Meeting Attending Frequency/Confirmed dates

Progress meeting District Auditor/Engagement Lead Chief Finance Officer

Will attend some of the monthly meetings with the Audit Manager Discussion of AGR - early September

Progress meeting District Auditor/Engagement Lead Chief Fire Officer/Chief Executive

Quarterly

Audit Committee District Auditor/Engagement Lead Audit Manager/Team Leader Audit & Performance Review Committee members

4 February 2011 29 April 2011 29 June 2011 (tbc) late September (tbc)

Progress meeting Audit Manager Chief Finance Officer

Monthly

Progress meeting Audit Manager Internal Audit Manager

Quarterly

Post Statements Progress meeting/communication

Team Leader Accountancy Manager

Weekly throughout post statements testing


Appendix 2 – Key Officer Contacts

28 The key contacts from the FRA will be:

Name Title Extn Expected date/period of contact

Simon Pilling

CFO/CX 5701 See Appendix 1

Geoff Maren

CFO 5711 See Appendix 1

Alison Wood

AM 5759 See Appendix 1


Appendix 3 – Audit Commission staff

The key Audit Commission staff involved in the audit are listed below.

Name Title Contact number

Paul Lundy District Auditor 0844 798 7145

Graham Kettles Audit Manager 0844 798 7162

Ross Woodley Principal Auditor 0844 798 4715

2010/11 opinion audit - changes you can expect to see West Yorkshire Fire and Rescue Authority

The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone. Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies. As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.

Audit Commission 2010/11 opinion audit - changes you can expect to see 1

Contents

Purpose of this document.................................................................................2

Impact of the main changes..............................................................................3 Journals ........................................................................................................3 Related Party Transactions ..........................................................................3 Accounting Estimates ...................................................................................3 Deficiencies in internal control ......................................................................4


Purpose of this document

1 As your appointed auditor, the audit of the financial statements I deliver to you, are governed by International Standards on Auditing (ISAs). These standards prescribe the basic principles and essential procedures, with the related guidance, which govern my professional conduct as your auditor.

2 As with all guidance and frameworks, auditing standards are revised and updated, often in a piecemeal fashion. However, in 2009 the auditing professional body, The International Auditing and Assurance Standards Board (IAASB), completed a comprehensive project to improve the clarity of all the ISAs. This is known as the Clarity Project.

3 One of the main objectives of the Clarity Project was to promote greater consistency of application between auditors. This has been done by reducing the ambiguity within existing ISAs and improving their overall readability and understandability.

4 The new clarified framework will apply to my audit of your 2010/11 financial statements. Because of the new standards, you can expect to see some changes in the way my audit team delivers your audit and the information they seek from you. The purpose of this document is to highlight to you the main changes and how they will impact you.

5 In summary the main changes you will see cover: ■ journals; ■ related Party Transactions; ■ accounting Estimates; and ■ reporting any identified deficiencies in internal control.

6 My Audit Manager has already discussed this document with the Chief Finance Officer as part of the discussions we have for planning the opinion audit and how we will work together. It would also be useful to copy this document to the Audit Committee to make members aware of the changes.


Impact of the main changes

Journals 7 ISA (UK&I) 330 (The Auditor's response to assessed risks), requires me to review all material year-end adjustment journals. I can do this by using interrogation tools such as CAATs (Computer aided audit techniques), IDea software or excel, depending on the compatibility of your general ledger software. My Audit Manager will discuss a suitable approach to this work with your staff in the near future.

Related Party Transactions 8 ISA (UK&I) 550 (Related parties) requires me to review your procedures for identifying related party transactions and obtaining an understanding of the controls that you have established to identify such transactions. I will also review minutes and correspondence for evidence of related party transactions and carry out testing to ensure the related party transaction disclosures you make in the financial statements are complete and accurate.

Accounting Estimates 9 ISA (UK&I) 540 (Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures) requires me to look at your accounting estimates in detail. As part of my audit, I need to know in particular: ■ the process you use to make your accounting estimates; ■ the controls you use to identify them; ■ whether you use an expert to help you in making the accounting

estimates; ■ whether any alternative estimates have been discussed and why they

have been rejected; ■ how you assess the degree of estimation uncertainty (this is the

uncertainty arising because the estimate cannot be precise or exact) ; and

■ the prior year's accounting estimates outcomes, and whether there has been a change in the method of calculation for the current year.


Deficiencies in internal control 10 ISA (UK&I) 265 (Communicating Deficiencies in Internal Control To Those Charged With Governance and Management) is a new standard.

11 If I identify a deficiency in any of your internal controls during the audit, I will undertake more audit testing to decide whether the deficiency is significant. If I decide the deficiency is significant, I will report it in writing to the Audit Committee as those charged with governance.


REPORT OF: CHIEF FINANCE OFFICER PURPOSE OF REPORT: INTERNAL AUDIT ACTIVITY REPORT RECOMMENDATION: THAT MEMBERS NOTE THE CONTENT

OF THE REPORT ______________________________________________________________ LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT DETAILS Exemption Category: None Contact Officer: G Maren – Chief Finance Officer

01274 655711 Background Papers:

SUMMARY To provide a summary of audit activity for the period from July to December 2010 and to report the findings to the Committee.

1 INFORMATION

This Committee has the responsibility for monitoring the work of internal audit. In order to facilitate this, Internal Audit provide a quarterly report of its progress which includes a summary of the work completed and an assessment of the level of assurance provided by the systems examined. This report covers the period from July 2010 to December 2010.

On completion of each audit the Auditors provide an assessment of the level of assurance that the control systems in place provide. There are four rankings as detailed below. :-

Substantial assurance Adequate assurance Limited assurance No assurance

More details of how these classifications are measured are provided in the attached appendix.

This report includes a detailed explanation of action which has been taken on any audits which are ranked as providing either limited assurance or no assurance.

2 ROUTINE AUDITS

During the current period 9 audits have been completed, 5 of which provided substantial assurance and 4 adequate assurance. Details of the audits and the findings are included in the attached appendix. In addition, section 8 of the attached report reviews the progress of implementation of any outstanding recommendations from previous audits.

3 SPECIAL INVESTIGATIONS There have been no special investigations in the period. 4 PERFORMANCE MEASUREMENT Section 10 of the appendix measures internal audit performance

against previous years and the current year’s target. 5 RECOMMENDATIONS Members are asked to note the contents of the report.

JULY TO DECEMBER 2010

Simon Straker: Audit Manager

INTERNALAUDITQUARTERLYREPORT

INTAUD/CRW/ 0111

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ABOUT THIS REPORT

This report contains information about the work of the Authority's Internal Audit provided by Kirklees Council. The 2010-11 Audit Plan includes 18 pieces of work covering a variety of cyclical audits which meet the expectations of the external auditor and address some of the major risks identified by the Authority.

For ease of reference the audits are categorised as follows:

1. Summary 2. Major and Special Investigations 3. Key Financial Systems 4. Other Financial Systems & Risks 5. Locations and Departments 6. Business Controls 7. Follow Up Audits 8. Recommendation Implementation 9. Other Work 10. Internal Audit’s Performance

Investigation summaries may be included as a separate appendix depending upon the nature of the findings.

When reports have been agreed and finalised with the Director concerned and an Action Plan drawn up to implement improvements, the findings are shown in the text. Incomplete audits are shown as Work in Progress together with the status reached: these will be reported in detail in a subsequent report once finalised.

Good practice suggests that the Authority's management and the Audit Committee should receive an audit opinion reached at the time of an audit based upon the management of risk concerning the activity and the operation of financial and other controls. At the first meeting of the Audit Committee, Members resolved to adopt an arrangement relating to the level of assurance that each audit provides. The four degrees of assurance selected are shown overleaf, together with a definition of the adequacy of the control environment and the degree of application of the controls for each opinion. An assessment of the opinion that would be reached based on the prioritisation of recommendations made is also shown.

INTAUD/CRW/ 0111

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As agreed with the Audit Committee, this report has been expanded to include details of the key recommendations applicable to each audit and the action taken by management regarding their implementation (Section 8).

The final section of the report concerns Internal Audit’s own performance. There is a need to be mindful that with the relatively small numbers of audits included in the plan, percentages can give a slightly misleading impression. There is a paucity of qualitative measures of the effectiveness of internal audit, the main one in use being client satisfaction surveys following the completion of an audit for which the return rate is relatively low.

INTAUD/CRW/ 0111

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Assurance Opinions

Level Control Adequacy Control Application

POSITIVE

OPINIONS

Substantial Assurance A robust framework of all key controls exists that are likely to ensure that objectives will be achieved.Controls are applied continuously or with only minor lapses.

Adequate Assurance A sufficient framework of key controls exists that are likely to result in objectives being achieved but the overall control framework could be stronger.

Controls are applied but with some lapses.

NEGATIVE

OPINIONS

Limited Assurance Risk exists of objectives not being achieved due to the absence of a number of key controls in the system.

Significant breakdown in the application of a number of key and / or other controls.

No assurance Significant risk exists of objectives not being achieved due to the absence of key controls in the system.

Serious breakdown in the application of key controls.

Reporting Assurance Levels

Level Fundamental Significant Merits Attention SUBSTANTIAL ASSURANCE

There are no fundamental recommendations

There is no more than one significant recommendation

There are no more than 5 merits attention recommendations.

ADEQUATE ASSURANCE

There are no fundamental recommendations

There are 2 – 4 significant recommendations

There are 6 – 10 merits attention recommendations

LIMITED ASSURANCE

There is 1 or more fundamental recommendations

There are more than 4 significant recommendations

There are more than 10 merits attention recommendations

NO ASSURANCE The number of fundamental recommendations made reflects an unacceptable control environment

N/A N/A

INTAUD/CRW/ 0111

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Classification of Recommendations

It is the practice of Internal Audit to undertake follow up audits to ensure that agreed actions have been undertaken. Any audits that produce less than "adequate assurance" will be followed up, together with a sample of the remainder and a new opinion will be expressed about the level of assurance that can be derived from action taken to address the weaknesses identified.

Classification Action

Fundamental A recommendation - often requiring immediate action – that is key to maintaining an appropriate control environment and thereby avoiding exposure to a significant risk to the achievement of the objectives of the system, process or location under review.

Significant A recommendation requiring action that is necessary to improve the control environment and thereby avoid exposure to a risk to the achievement of the objectives of the system, process or location under review

Merits Attention A recommendation where action is advised to enhance control or improve operational efficiency.

1. SUMMARY

This report contains information about work both completed and in progress during the second and third quarters of the year in relation to the 2010-11 Internal Audit Plan, plus details of management’s implementation of agreed recommendations arising from previous audits completed in 2010-11.

The audits undertaken during this period have concluded that in the main processes are in place to control both the financial and other business risks examined. Each audit has provided at least Adequate Assurance concerning the control environment, with the majority (5) receiving a Substantial Assurance opinion.

Management have agreed the recommendations made and completed an Action Plan to address the issues that have been identified in the individual pieces of work.

Five audits remain outstanding from the current plan, primarily relating to the key financial systems, which are programmed towards year end to ensure full year coverage in accordance with arrangements agreed with external audit.

INTAUD/CRW/ 0111

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2. SPECIAL INVESTIGATIONS & REVIEWS

None during this period.

3. KEY FINANCIAL SYSTEMS

System Findings Audit Opinion

Income – Special Service Calls

An evaluation of policy and procedures relating to Special Service calls found arrangements to be of a high standard. Both administrative and operational procedures for processing such calls were found to be well documented and consistently applied. The process includes regular monitoring of outstanding debt, with only a small number of chargeable calls being waived.

Substantial Assurance

INTAUD/CRW/ 0111

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4. OTHER FINANCIAL SYSTEMS & RISKS

System Findings Audit Opinion

Car Leasing Scheme This was a review to establish whether current car leasing scheme arrangements provide value for money when compared against alternative methods of reimbursing officers required to have transport for incident response. Financial comparisons carried out to the cost of essential car user allowance and pooled car schemes found that current arrangements provide both accountability and value for money.

Substantial Assurance

Insurance Work in progress (draft report to be issued shortly)

5. LOCATION & DEPARTMENT AUDITS

None during this period.

INTAUD/CRW/ 0111

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6. BUSINESS CONTROL AUDITS

Control Findings Audit Opinion

Director of Corporate Services

Vehicle Accidents This review of management controls and arrangements to address the risks arising from the hazard of vehicle accidents, as identified in the Authority’s Risk Management Matrix, found that a great deal of work had been done since the Lockwood accident to endeavour to further minimise the risk of another accident. The management controls and arrangements as described in the Matrix were examined and tested and found to be satisfac

Documents

LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT …...Letter West Yorkshire Fire and Rescue Authority Audit 2009/10 . The Audit Commission is an independent watchdog, driving economy,