Contact: Ejner Knudsen, 01962 847403, email: [email protected]

1 Introduction

1.1 The purpose of this report is to outline proposed changes to the internal audit strategy for 2005/06 to 2007/08 for approval by members of the Governance Committee.

2 Background

2.1 Standards Committee approved the current internal audit strategy for 2004 to 2006 for Hampshire County Council in April 2004. This included a number of long term developments which are still in progress (a copy is attached at appendix A). The strategy is reviewed annually to ensure that it remains up to date and reflects recent developments to ensure that internal audit resources continue to be used effectively in providing an appropriate level of assurance.

2.2 The revisions to the audit strategy have already been considered by the Treasurer's Management Team, together with the summary audit plan for the three year period (copy attached at Appendix B). Chief Officers have also been consulted on their departmental plans.

2.3 To date, the audit strategy, which has been formally documented since October 1999, has been largely successful in achieving the aims of internal audit identified in the Accountancy Practices Board (APB) guidelines, the CIPFA Code of Practice for Internal Audit in Local Government in the United Kingdom, (the Code) and the CIPFA Local Government Audit Manual.

2.4 The definition of internal audit, as stated in the Code, is as `an assurance function that primarily provides an independent and objective opinion to the organisation on the control environment comprising risk management, control and governance by evaluating its effectiveness in achieving the organisation's objectives. It objectively examines, evaluates and reports on the adequacy of the control environment as a contribution to the proper, economic, efficient and effective use of resources.' The terms of reference for the internal audit service provided to Hampshire County Council are attached as Appendix C for approval by members.

3 Change issues

3.1 There are a number of external and internal change factors that affect the internal audit strategy. As internal audit resources are limited, the aim of this review of the strategy is to ensure that an appropriate level and balance of coverage is maintained across the County Council.

3.2 External factors that continue to affect the current audit strategy include:

· the latest requirements and changes in the Comprehensive Performance Assessment (CPA)

· the impact of `Every Child Matters' on operational risks and financial control.

3.3 Internal factors include:

· the impact of the SAP roll-out and changes in the systems framework and assurance levels as a result

· the centralisation of the human resource function.

3.4 The impact of these factors on the audit strategy is assessed in more detail below.

4 Impact on the internal audit strategy

Value for money

4.1 In December 2004, the Audit Commission published their proposals for comprehensive performance assessment (CPA) for 2005. The approach includes three areas of activity:

· a more challenging corporate assessment

· improved review of service blocks with greater reliance on existing information rather than on site inspection. The content of service blocks has also been revised including the bringing together of services for children and young people to reflect the focus of the Children Act

· a more rigorous assessment of the use of resources, including an explicit judgement on value for money. It will also provide the County Council with the opportunity to show that it is delivering efficiency gains required under the Efficiency Review.

These elements will be brought together into an overall assessment.

4.2 From 2005/06 the Audit Commission will also be required to give an opinion on the use of resources as part of their new Code of Practice.

4.3 Management's arrangements for securing value for money has always been an implicit part of internal audit reviews. In line with the CPA changes, this area will be developed to ensure that where specific value for money opportunities are identified through the course of internal audit work, they will be reported to management. We will also consider the need for internal audit involvement in specific value for money studies where these are undertaken by departments.

4.4 The scope of corporate governance work, both at a corporate and departmental level will also be extended to include an evaluation for the management arrangements for securing value for money.

Children Act

4.5 The impact of the implementation of the Children Act on our audit work for Social Services and Education will be assessed in liaison with our departmental key contacts during the year. Our audit plans for 2005/06 have taken account of changes already made by the departments in preparation for any wider re-organisation.

Devolved SAP Controls

4.6 As outlined in the internal audit strategy approved by the Standards Committee last year, the ongoing roll out of SAP continues to lead to a further devolution of control. This will result in internal audit resources gradually transferring from central to departmental and unit level reviews to enable audit testing to be carried out to confirm that system controls are operating in practice.

Centralisation of the human resources function

4.7 Centralisation of the County Council's human resource function presents a number of risks and opportunities, dependent on the effectiveness of the controls within the new processes and procedures. For example pre employments checks, where previous audit findings have highlighted particular concerns relating to criminal records bureau checks in a number of departments. Greater emphasis will be placed in this area to review the impact of the centralisation and provide ongoing assurance that risks are managed.

Efficiency plan

4.8 Arrangements for monitoring the delivery of the County Council's efficiency plan will be subject to review by either internal or external audit and discussions will take place to assign responsibility for this in due course.

5 Resource implications

Staff input

5.1 The overall objective of the audit strategy is to distribute internal audit resources to provide an appropriate level of assurance in each department and for the County Council as a whole. The changes outlined above will be managed within existing resource levels by redistributing resources to the higher risk areas.

6 Recommendation:

6.1 That the Governance Committee approve the revisions to the internal audit strategy for 2005/06 to 2007/08.

6.2 That the Governance Committee approve the terms of reference for the internal audit service provided to Hampshire County Council (Appendix C).

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

NONE