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

1 Summary

1.1 The internal audit opinion is that Hampshire Fire and Rescue Authority has an effective framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the Authority's objectives. Audit testing has shown controls to be generally working in practice. Where improvements to controls are required, we are satisfied that appropriate action has been agreed by relevant managers and that they will be resolved in an appropriate manner.

1.2 The following paragraphs explain how we arrived at this opinion.

2 Background

2.1 From 2002/03 the Code of Practice on Local Authority Accounting in the UK has required the Treasurer to sign a statement on the system of internal financial control as a note to the published accounts. From 2003/04, the Chairman of Hampshire Fire and Rescue Authority and Chief Officer are now required to sign a more general statement of internal control replacing the previous one. To support this process, the Chief Internal Auditor is required to provide an independent opinion on the adequacy and effectiveness of the system of internal control operating across the Authority.

2.2 This opinion is contained in the assurance statement attached at Appendix A.

2.3 It is a management responsibility to develop and maintain the internal control framework, and to ensure that the Authority's resources are properly applied. Internal audit is an assurance function that primarily provides an independent and objective opinion to the Authority on the control environment comprising risk management, control and governance by evaluating its effectiveness in achieving the Authority'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. (source: CIPFA Code of Practice for Internal Audit in the United Kingdom 2003)

3 Objectives

3.1 This report will outline the level of assurance that we are able to provide, based on the internal audit work completed during the year. It will:

· give an opinion on the overall adequacy and effectiveness of the Authority's internal control environment

· disclose any qualification to that opinion, together with the reasons for the qualification

· present a summary of the audit work undertaken to formulate the opinion, including reliance placed on work by other assurance bodies

· draw attention to any issues the Chief Internal Auditor judges particularly relevant to the preparation of the statement on internal control

· compare the work actually undertaken with the work that was planned and summarise the performance of the internal audit function against performance measures and criteria

· comment on compliance with these standards and communicate the results of the internal audit quality assurance programme.

4 Audit approach

4.1 A summary outlining the audit approach and audit delivery during 2004/05 is provided in appendix B.

4.2 Detailed reports, giving the internal audit opinion on each of the systems examined have been issued to individual managers who have considered each report and provided a management response. This report provides an opinion on the overall control framework using the following terms which are defined in Appendix C:

· good

· effective

· basic

· inadequate.

5 Overall assurance

5.1 The internal audit opinion is that Hampshire Fire and Rescue Authority has an effective framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the Authority's objectives. Audit testing has shown controls to be generally working in practice. Where improvements to controls are required, we are satisfied that appropriate action has been agreed by relevant managers and that they will be resolved in an appropriate manner.

5.2 There has been no change in the overall level of assurance provided compared to that given in our 2003/04 annual internal audit opinion.

6 Issues raised during 2004/05

Main Findings

6.1 Based on our audit evidence obtained during 2004/05, we concluded that 15 reviews had an effective framework of control and seven had a basic framework of control to ensure that the activities and procedures achieve the Authority's objectives. Audit testing has shown controls in these areas to be generally working in practice.

6.2 A summary of the opinions on the reviews carried out in 2004/05 is shown at Appendix D.

6.3 In conducting our review of whole-time and retained fire stations, visits were undertaken to 10 establishments during the year. Internal Control questionnaires were sent to a further eight stations in the Southampton and Fareham and Gosport areas for stations to carry out a self-assessment of the controls in operation and aid our risk assessment.

Significant findings

6.4 Whilst a number of significant recommendations were made during the year, in most cases the specific issues, whilst significant to the systems concerned, were not material in the context of the Authority as a whole. However, the following concerns were raised in the Networks and Communications review:

· there are no Terms of Reference or Project Initiation Documents in use

· costs and alternative options have not been documented or specified

· hardware choice has not been based on formal technical analysis.

The Information Services Manager has agreed to address the issues raised.

6.5 The ten day audit of Corporate Governance was reduced to four days to support the development of the Authority's Code of Corporate Governance, which will be subject to full audit review in 2005/06.

Common findings

6.6 No significant common findings have been identified during the year. However a summary of common issues raised during our reviews of stations is outlined in Appendix D.

Follow-up work

6.7 Our audit work confirmed that good progress has been made in respect of the concerns raised in the 2003/04 annual audit opinion, in particular:

· an IT strategy is now in place

· there is greater budgetary control over temporary/casual/agency staff

· SAP has replaced the revelation application where concerns were raised over the lack of security controls and segregation of duties of users. We will review the controls within SAP during 2006/07 when the roll out is complete.

6.8 We will continue to review the implementation of audit recommendations made in 2004/05 as part of our 2005/06 audit plan.

Irregularities

6.9 There were no financial irregularities reported to Hampshire Audit Services in 2004/05.

7 Recommendations

7.1 The level of assurance on the control framework, based on audit testing, within Hampshire Fire and Rescue Authority, is noted.

7.2 The main risks identified during the year are noted.

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

Appendix A

Annual assurance statement for the year ended 31 March 2005

Introduction

The Accounts and Audit Regulation 2003 require the Treasurer to maintain an adequate and effective system of internal audit.

From 2002/03 the Code of Practice on Local Authority Accounting in the UK has required the Treasurer to sign a statement on the system of internal financial control as a note to the published accounts. From 2003/04, the Chairman of Hampshire Fire and Rescue Authority and Chief Officer are now required to sign a more general statement of internal control replacing the previous one. To support this process, the Chief Internal Auditor is required to provide an independent opinion on the adequacy and effectiveness of the control environment, comprising risk management, control and governance.

Responsibilities

It is a management responsibility to develop and maintain the internal control framework, and to ensure that resources are properly applied in the manner and on the activities intended. It is the responsibility of Internal Audit to form an independent opinion, based on reviews during the year, on the adequacy and effectiveness of the system of internal control.

Basis of opinion

The strategic and annual internal audit plans were prepared by the Chief Internal Auditor to take account of the characteristics and relative risks of the activities involved and were approved by the Treasurer. The internal audit plan has been delivered in accordance with the Code of practice for internal audit in local government in the United Kingdom, issued by CIPFA.

Work has been planned and performed so as to obtain all the information and explanations, which were considered necessary in order to provide sufficient evidence to give reasonable assurance that the internal control system is operating effectively. However, this assurance can never be absolute. The most that the internal audit service can do is to provide reasonable assurance that there are no major weaknesses in the system of control.

Opinion

In my opinion Hampshire Fire and Rescue Authority has an effective framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the Authority's objectives. Audit testing has shown that the controls are generally working in practice.

Ejner Knudsen

Chief Internal Auditor

Hampshire Fire and Rescue Authority

30 June 2005

Appendix B

Audit Background

1 Scope of internal audit

1.1 The Chief Internal Auditor is required to provide the Authority with an assurance on the system of internal control. It should be noted, however, that this assurance can never be absolute. The most that the internal audit service can do is to provide reasonable assurance that there are no major weaknesses in the system of control. In assessing the level of assurance to be given the following have been taken into account:

· all audits completed during 2004/05, including those audits carried forward from 2003/04

· any follow up action taken in respect of audits from previous periods

· any significant recommendations not accepted by management and the consequent risks

· the effects of any significant changes to the organisations objectives or systems

· the quality of internal audit's performance

· the proportion of audit need that has been covered to date

· the extent to which resource constraints may limit the ability to meet the full audit needs of the Authority

· any limitations that may have been placed on the scope of internal audit.

2 Audit service quality

2.1 The service we provide is designed to ensure compliance with the standards for internal audit promulgated by the CIPFA Code of Practice for Internal Audit in Local Government in the United Kingdom 2003. The standards cover the following areas:

Organisational standards

· scope of internal audit

· independence

· audit committees or equivalent

· relationships with management, other auditors and other review bodies

· staffing, training and development

Operational standards

· audit strategy

· management of audit assignments

· due professional care

· reporting

· quality assurance.

2.2 Hampshire Audit Services is registered under ISO9001, the international quality management standard and we have developed comprehensive procedures to ensure that all audits are conducted to the required standard. In particular, the audit outline is approved, before site work commences, by the Audit Manager, who also reviews each draft and final report before it is issued to ensure that all key controls have been properly evaluated and that adequate audit evidence has been obtained to support the findings.

2.3 We also have Investors in People accreditation, which ensures that the training and development needs of all our staff are reviewed on an annual basis as part of our performance development scheme and a detailed training and development programme is planned, delivered and evaluated each year.

2.4 Our quality assurance programme includes:

· annual service improvement planning, using appropriate management tools to challenge our approach

· annual benchmarking with other local authority internal audit providers to compare the efficiency, effectiveness and economy of our services

· a three year rolling programme of quarterly reviews of a sample of completed files and reports and management processes to ensure consistency in approach and compliance with professional standards and quality procedures. Issues raised are discussed by the Section's management team and follow up action is monitored by the Quality Manager

· quarterly review of performance indicators reported to the Treasurer's management team.

2.5 Whilst identifying some opportunities for continuous development, the results of the quality assurance programme confirm that we substantially comply with the requirements of the Code of Practice.

2.6 In addition, our work is subject to annual review by the Authority's external auditors who continue to rely on our work to support their audit opinion.

3 Audit Needs

3.1 A risk assessment was undertaken for the 2004/05 audit plan, which involved an analytical review of data relating to the Authority including: size of budgets, content of committee reports or committee decisions, previous audit findings and consultation with the Director of Corporate Services and other finance managers to ensure the audit plan addressed the key risks facing the Authority.

A summary of audit days delivered during 2004/05 is provided in Table 1.

Table 1 - Summary of audit days delivered (2004/05)

Detail	2004/05 days	Days
Days carried forward from 2003/04		26
Audit plan agreed by Treasurer	260
Variations to the plan	(47)
Revised plan at the year end		213
Total days delivered including delivery of carry forward audits		212
Days carried forward to 2004/05		27

3.2 The audit plan was revised during the year to 213 days. The original and revised audit plans are shown at Appendix E and the agreed changes made to the plan reflect the following:

· an additional payroll review undertaken at the request of the Financial Services Manager, following an error in processing pay, which resulted in an under-payment to retained fire-fighters (+10 days)

· the Property Management review being postponed to 2005/06 following the late completion of the previous review. The audit was replaced by a review of fuel issues (-2 days net)

· the review of Members expenses was cancelled as our risk assessment process showed this area to be a low risk due to the small amounts involved. (-7 days)

· a full review of overtime has been postponed to 2005/06 due to the low level of overtime payments during the year. Controls over overtime payments have been assessed as part of the establishment reviews (-10 days net)

· the Internal Audit Strategy was prepared and presented to the new Governance Committee for approval (+5 days)

· a full review of Corporate Governance was postponed to 2005/06 pending completion of the Corporate Governance Policy. Four days were retained in the plan to provide advice and guidance (-6 days)

· time savings arising from the review of Networks and Communications due to the project being in its early stages (-6 days) and time savings arising from our risk assessment process with regard to Hants Fire Net computer audit (-4 days)

· due to a smaller number of high value contracts being awarded, the total number of days allocated to the review of capital and revenue contacts was reduced (-5 days)

· a reduction in the level of testing planned as part of the Workshops review, as a result of the implementation of the new stock system (-5 days)

· time savings arising from the re-risk assessment of the Budgetary Control review (-5 days), and Commercial Training (-2 days)

· no requirement to utilise the 5 days set aside for special investigations for the year (-5 days)

· time adjustments for audits as a result of our risk assessment for each audit (-5 days).

3.3 The carry forward days relate to audits where a draft was issued and awaiting management response or where testing was still in progress as at 31 March 05.

3.4 The following audits were in progress at 31 March 2005 and will be reported in the 2005/06 annual internal audit opinion:

· Workshops

· Unofficial funds

· Contracts review

3.5 No limitations were placed on the scope of our work during the year.

4 Audit approach

4.1 We examined systems operating to achieve objectives set by management in each of the areas detailed in appendix E. We are not aware of any significant changes to any of the systems reviewed since our work was conducted.

4.2 Our work has been carried out using a systems based audit approach. This covers the internal control systems of the service and during the conduct of our work, particular attention was given to arrangements established to ensure:

· financial control

· safeguarding of assets to reduce exposure to theft or fraud

· compliance with the Services' policies, procedures, laws and regulations

· the integrity and reliability of information and data

· value for money.

4.3 An implicit part of our systems based audit approach is an evaluation of the controls in place to prevent and detect fraud and we perform sufficient audit testing to confirm that controls are working in practice.

5 Audit Liaison

5.1 Staff within Hampshire Fire and Rescue Service have been co-operative and helpful during audits, and have worked with us to ensure that audits have been timed to suit both parties.

5.2 Management responses to audit reports have generally been prompt helping to ensure recommendations to address control weaknesses receive management's early attention.

5.3 Audit Appraisal Questionnaires (AAQ) have been received from nine of the 22 audits with an average satisfaction score of 78.5% (90% 2003/04). The decrease in satisfaction score has arisen as a result of requesting Station Officers to complete AAQs rather than the Group/Station Support Manager. This has helped us identify changes needed to the way advance arrangements are made to carry out a station audit. The overall score is evidence of a good working relationship between Internal Audit and HFRS.

5.4 There have been quarterly meetings between the Director of Corporate Services and Internal Audit to discuss progress on the delivery of the internal audit plan and provide an opportunity to share information on audit and operational developments within the service.

Appendix C

Audit opinion definitions:

Appendix D

Hampshire Fire and Rescue Authority

Annual internal audit opinion 2004/05 - Summary of main issues reported during 2004/05.

Note 1 - audit opinion definition can be found at appendix C.