Transcript KPMG UK Talkbook Sidebar LB1 (Aug 04)

INFRASTRUCTURE, GOVERNMENT AND HEALTHCARE
2005/06 Interim Memorandum
Wyre Forest District Council
September 2006
AUDIT
Contents
Page
Purpose and responsibilities
3
Use of resources – key lines of enquiry
4
Performance Indicators 2005/06
5
Systems of internal financial control
7
Audit of accounts
12
Appendix 1 – Recommendations
13
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Wyre Forest DC – Audit and Accounts Plan 2005-06
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Purpose and responsibilities
Purpose
KPMG LLP is the appointed auditor of Wyre Forest District Council (“the Council”). Our audit is undertaken
in accordance with the Audit Commission’s Code of Audit Practice (“the Code”).
Our work was carried out in accordance with the audit elements of the Audit and Inspection Plan 2006/07.
This report records the significant issues arising from our interim audit work and covers the following areas:
• review of the Council’s Best Value Performance Indicators;
• review of the Council’s systems of internal control; and
• considers the Council’s preparations for the 2005/06 statement of accounts.
We will issue a separate report following the completion of our main accounts audit visit.
Respective responsibilities
This report is addressed to the Council and has been prepared for the sole use of the Council. We take no
responsibility to any member of staff acting in their individual capacities, or to third parties. The Audit
Commission has issued a document entitled Statement of Responsibilities of Auditors and Audited Bodies.
This summarises where the responsibilities of auditors begin and end and what is expected from the audited
body. We draw your attention to this document.
External auditors do not act as a substitute for the audited body’s own responsibility for putting in place proper
arrangements to ensure that public business is conducted in accordance with the law and proper standards, and
that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Use of resources – key lines of enquiry (KLOE)
The Council was scored as “adequate performance” in our 2005 Use of Resources work as reported in March
2006.
As highlighted in the adjacent chart, this is consistent when benchmarked against the majority of all District
Councils. The work on the 2005 Use of Resources was determined by the extent to which the Council had
embedded procedures in place to satisfy the KLOEs, which covered:
• financial reporting;
• financial management;
• financial standing;
• internal control; and
• value for money.
Districts
Number
Percent
Number
Percent
Level 1 – inadequate
17
7
3
2
Level 2 – adequate *
134
56
62
41
Level 3 – performing well
82
35
82
55
Level 4 - performing strongly
5
2
3
2
238
100
150
100
Since our review, the Council has taken steps to address a number of key issues. During our interim review
we have been able to identify that the Council has made positive progress in embedding controls and
policies to enhance the internal control environment, for example the Statement on Internal Control has
been reviewed as a separate document to the financial statements.
Total
The Council’s progress across all areas will be reviewed later this year in accordance with the updated criteria
produced by the Audit Commission.
* WFDC’s category
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Single tier and County Councils
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Performance Indicators 2005/06
The Council’s performance for the year for monitored performance indicators (‘PIs’) has shown that
56% of PIs have improved. The table below compares the Council’s performance for those indicators
where data is available in 2004/05 and 2005/06. The key issues to note are:
Improved performance (continued)
BV2b - Promote race equality
This indicator moved from the median to top quartile. The Council’s score increased by 33% to 77%.
This exceed the Council’s 55% target.
Performance indicator movements from 2004/05 and 2005/06
2004/05
2005/06
Improved
28
31 (56%)
Deteriorated
15
11 (20%)
No movement
12
13 (24%)
Total
55
55
BV 166 - Percentage score against the Environmental Health
best practice checklist
This indicator has moved from the median to top quartile. The percentage score increased by 10.6%
to 96.6%. This exceeded the Council’s 2005/06 target by 6.6%.
BV157 - progression towards e-Government
This target moved from 72% to 98.5%. The Council’s target being 100%. The Government’s national
target was for all Council’s to achieve 100% compliance with this indicator by December 2005
BV156 - ensuring public buildings are accessible to the disabled
This indicator increased by 19% to 83%. The Council’s target being 90%. The Council has now failed
to meet its target under this indicator for two successive years. This indicator is a good measure of the
Council’s compliance with the Disabled Discriminations Act, and as a result the Council will need to
address this performance during 2006/07.
BV79(ii) - Percentage of housing benefit overpayments
debt
outstanding
Improved performance
recovered compared to the total amount of
This indicator increased by 27% to 55%, the target being 33%.
BV11b - Percentage of top earners from a minority ethnic
background.
This indicator moved from the bottom quartile in 2004/05 to the top quartile in 2005/06.
BV91 - Percentage of the population served by kerbside
recycling collection.
This indicator moved from the bottom to median quartile. The percentage increased by 9.2% to 90.6%.
This is however 4% short of the Council’s 95% target.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Performance Indicators 2005/06
Weakened performance
BV 109b – Percentage of minor planning application determined
within 8 weeks
This indicator fell from 71.31% to 70.97%. The current year’s performance is 0.97% above the Council’s
target.
BV 16 – Percentage of employees with a disability
This indicator fell from the median to bottom quartile. The percentage in 2004/05 being 2.02% and
2005/06 being 1.56%. The Council’s target is 3%. This indicator is sensitive to minor fluctuations in the
Council’s staff turnover because of the low number of employees.
BV 79a – Percentage of cases for which the amount of benefit due
was calculated correctly
This indicator has fallen from the median to bottom quartile. The 2005/06 percentage being 95.8%
(2004/05: 98%). The Council’s target is 99%.
Failure to accurately process benefit claims has a number of implications for the Council, these include:
• The Council may incur reductions in subsidy due to incorrect entry of data that may result in benefit
overpayments; and
• Incorrect processing may result in a delay in payments to the claimant and increase customer
dissatisfaction.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Systems of internal financial control
“It is the responsibility of the Council to develop and implement systems of internal financial control
and to put in place proper arrangements to assess their adequacy and effectiveness.” (Source: Code
of Audit Practice 2005).
Overall arrangements over Internal Audit
Our high level review assessed the Internal Audit function against a number of criteria, including,
professional requirements, independence, objectivity and delivery.
We considered whether arrangements to ensure that the overall systems of internal financial control
over the finance functions remain adequate and effective. We based this work on our cumulative
knowledge of the operating arrangements in place at the Council and also a review of:
•the work of Internal Audit; and
•the overall governance and management arrangements in place at the Council.
Internal Audit
As part of the process of forming our opinion on the Council’s financial statements, we consider the
Council’s systems of internal financial control. These are management’s mechanisms for obtaining
assurance that major financial systems, for example, payroll or creditor payments meet their
objectives. A vital element within the Council’s control environment is the operation of an effective
Internal Audit function.
In order to avoid duplication of work and maximise the effectiveness of the Council’s total audit
resource, we apply the Audit Commission’s Managed Audit concept, testing and placing reliance on
the work of Internal Audit wherever possible.
Our review focused on two areas:
• overall arrangements over Internal Audit; and
• a detailed review of core financial systems.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Systems of internal financial control
Delivery of the Internal Audit Plan 2005/06
As the table below highlights, Internal Audit completed 85% of its 2005/06 Plan.
Internal Audit Plan 2005/06 outturn
Area
Plan
Days
System and probity
598
542
Computer audit
130
87
Contract audit
60
34
Consultancy and advice
50
56
Irregularity
50
49
Specific service duties
50
27
Total
938
795
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Internal Audit’s opinion on the Council’s internal control environment
The Financial Services Manager (Audit & Benefits) presented an opinion on the adequacy and
effectiveness of the Council’s internal control environment to the Audit Committee in June 2006. This
took into account those reviews that were in draft format at the year end. Overall the Council’s
internal control environment was assessed as “adequate with reservations”. These reservations were
based on the Internal Audit reviews where limited assurance was obtained on key systems, these
included:
• Financial services
 Budgetary control;
 Agresso application; and
 NDR application.
• Cultural, leisure and commercial services
 Accounting and budgetary control.
Our review of individual Internal Audit files considered the impact of Internal Audit’s findings on our
external audit approach. Overall, the weaknesses identified will require some additional substantive
testing over key balances, however we would not expect any further work to be carried out by the
Internal Audit function.
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Systems of internal financial control
Internal Audit - File review
In accordance with the managed audit process we reviewed the work undertaken by Internal Audit on
each of the core financial systems, to determine the:
• level of coverage of the key high level controls for each system and the adequacy of sample sizes
tested;
• clarity of working papers and adequacy of the communication of audit issues; and
• the adequacy of quality control and management review.
We have reviewed Internal Audit’s work on the Council’s core financial systems, for example budgetary
control, payroll, and revenues and benefits. Our work involved reviews of the individual working papers
and findings of Internal Audit supported by our own walkthrough testing of the key systems to
corroborate Internal Audit’s findings of the key controls in operation.
We noted that the level of testing, whilst adequate, varied between reviews. The level of testing
performed being adjusted for the respective risk associated with each review. We understand that the
Financial Services Manager (Audit & Benefits) agrees the level of testing for all reviews prior to any
work commencing.
Based on our reviews of the above systems, and discussions with the Financial Services Manager (Audit
and Benefits) over the key findings from the reviews, we have concluded that we are able to place
reliance on Internal Audit’s work on the core systems for our opinion purposes.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Recommendation 1: Internal Audit
Internal Audit should give consideration to documenting the rationale for the level of testing to be
performed.
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Systems of internal financial control
The Statement on Internal Control
For the 2005/06 financial year the Cabinet has approved the Statement on Internal Control (SIC) as a
separate exercise to the financial statements as a method of improving the Council’s governance arrangements.
The Council’s processes for preparing the SIC incorporates the findings of Internal Audit and an annual
review by the Corporate Management Team, which identified risk management as a key area for further
development.
A SIC, if used appropriately, can be a tool to manage key areas of risk and to further embed a culture of risk
management within an organisation. A risk assessment performed by the Council and the associated
assurances to manage those risks is used to drive the internal audit plan and forms the detail within the SIC.
Risk Management (continued)
• set out the arrangements for obtaining assurance on the
controls across all areas of principal risk;
• evaluate the assurance across all areas of principal risk;
• identify positive assurances and areas where there are gaps in
• put in place plans to take corrective action where gaps have
to principal risks; and
• maintain dynamic risk management arrangements including a
effectiveness of key
controls and/or assurances;
been identified in relation
well founded risk register.
Recommendation 2: Risk management
Risk Management
An effective mechanism to monitor risks is through the use of an Assurance Framework. This
provides a simple but comprehensive method for the effective and focused management of the
principal risks to meeting Council’s objectives. It also provides a structure for the evidence to
support the Statement on Internal Control. This simplifies Member reporting and the prioritisation
of action plans, which, in turn, allow for more effective performance management.
The key processes in establishing an Assurance Framework identify that Council’s should:
• establish the principal objectives as identified in the Corporate
Plan;
• identify the principal risks that may threaten the achievement
of these objectives;
• identify and evaluate the design of key controls intended to
manage these principal
risks, underpinned by core controls
assurance standards;
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
Wyre Forest District Council, the Council should continue to develop its risk management procedures
and identification of risks.
The Council should consider implementing an assurance framework to monitor key risks.
An assurance framework example is shown overleaf.
Wyre Forest DC – Audit and Accounts Plan 2005-06
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Example Assurance Framework
Risk
Gross Risk
Account-ability
Imp
L/H
Control description
Source of Assurance
Control Eff’ness
Net/ residual risk
Imp
L/H
Action
Responsibility
Review Date
1
Poor reputation of the Council with
the public leading to satisfaction
levels
4
4
Entire Exec team
E.g. protocols, action taken on
feedback, PR strategy
E.g. survey data, analysis of referral
patterns
Weak
3
3
E.g. reputation management with target audience
(what are they looking for)
CEO
Feb 07
2
Failure to deliver efficiency
improvement programme
4
4
Finance Director
E.g. project management and
capture of all efficiencies
E.g. Audit Committee minutes,
Internal Audit reports
Good
3
2
Monthly report to Audit Committee and Exec on
compliance to cost savings measures.
S151 Officer
Dec 06
3
Lack of strategic service development
plans for parts of the business
3
4
Strategy Director
E.g. Corporate plan, Service
Development Plans
E.g. Stakeholder and peer feedback
on plans, External Audit review
Good
2
3
Target risk Directorates/services for development
of plans for presentation to the Board
Strategy Director
March 07
4
Recruitment and retention in the
context of single status
4
4
HR Director
E.g. HR polices and procedures,
remuneration strategy, PR strategy
E.g. Staff survey, grievance statistics, Weak
Internal Audit report on recruitment
and retention
3
4
Implement action plan to address issues in the
staff survey
HR Director
March 07
5
Failure to communicate effectively
internally and externally
2
4
Chief Executive
E.g. PR strategy, communications
strategy
E.g. Stakeholder feedback, survey
data
2
3
Implement action plan to address issues in the
staff survey
HR Director
June 05
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Adequate
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Audit of accounts 2005/06
The Council has a closedown timetable in place to ensure that the 2005/06 Statement of Accounts are
approved by Members by the statutory deadline of 30 June 2006, one month earlier than the previous year.
Our audit commenced on 10 July 2006. In order to facilitate an effective and timely audit we issued and
discussed a schedule of our working paper requirements to the Council in April 2006.
We are engaged in regular meetings with the Council’s finance team which allows us to monitor the
Council’s closedown processes and ability to meet our working paper requirements. To date the Council
remains on track to meet its internal and external deadlines. We shall continue to liaise with the Council’s
finance department in the lead up to the final accounts audit to ensure the Council remains on target with its
closedown timetable and production of supporting working papers.
We shall comment on the Council’s 2005/06 Statement of Accounts on the conclusion of our audit later this
year.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
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Appendix 1 – Recommendations
Recommendation
1
Recommendation: Internal Audit
Internal Audit should give consideration to documenting the rationale for the level of testing to be performed.
2
Management response
This has already been implemented following discussions with KPMG
Recommendation : Risk Management
Wyre Forest District Council, the Council should continue to develop its risk management procedures and
identification of risks.
The Council should consider implementing an assurance framework to monitor key risks.
© 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG International.
The Council is currently assessing its capacity for developing risk management and an
assurance framework and will be bringing forward proposals for implementation in
2007/08
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