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

1 Introduction

1.1 The purpose of this report is to review delivery of the current Audit Strategy and highlight changes for approval by members of the Governance Committee.

2 Background

2.1 The Audit Strategy 2004 to 2007 was reviewed, updated and approved by Governance Committee in October 2004. This included a number of long term developments which are still in progress. The aim of this report is to review progress in delivery of the Strategy and ensure that it remains up to date. This enables internal audit resources to 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 and Senior Officers, together with the summary audit plan for the three year period (copy attached at Appendix A).

2.3 The audit strategy 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 HFRS were approved by Governance Committee in March 2005, but paragraph 25 has since been updated to reflect the requirements of the Freedom of Information Act. The updated terms of reference are attached as Appendix B for approval by members.

3 Review of current Audit Strategy

3.1 We have made good progress in working towards delivering the three year Audit Strategy agreed in 2004/05. The areas subject to ongoing development are highlighted below.

Corporate governance

3.2 The Audit Strategy for 2004/05 allowed for a full systems based review of corporate governance over a three year cycle, supported by limited scope reviews on an interim basis.

3.3 The Corporate Governance Policy document was approved in March 2005 and the first full audit is being undertaken in 2005/06. This is a high level review of corporate governance arrangements to provide a broadly based assurance.

3.4 Developments in corporate governance have expanded the scope of the review and to accommodate this, we propose a change in approach from 2006/07, whereby agreed elements of the programme will be covered each year over a five year cycle. This will ensure that the full programme is covered, whilst providing more robust assurance in each area.

Establishment audits

3.5 In line with our current strategy, there will be a gradual move away from the strict cycle of establishment visits, with a corresponding increase in departmental systems reviews. The current strategy also introduced the idea of piloting a Control Risk Self Assessment questionnaire for completion by officers in charge of fire stations, to be followed up by short notice visits in a sample of these to confirm compliance with controls.

3.6 Internal control questionnaires have been introduced, however, short notice visits were found to be impractical for operational reasons. In future, we propose that short notice or unannounced visits will only be carried out as part of our fraud detection work.

Fraud and irregularity

3.7 We have participated in the National Fraud Initiative and National Anti Fraud Network on behalf of HFRS, although we are still working towards delivering the current strategy in respect of a planned programme of fraud detection work. This will continue to be addressed during 2006/07 with the deployment of resource specifically to this area.

3.8 Since agreement of our 2004 Audit Strategy, we have established closer liaison with the Police and it may not be necessary to pursue in-house prosecutions as previously suggested. The level of awareness of the Authority's Anti Theft, Fraud and Corruption policy and Reporting Concerns at Work policy and other related policies will continue to be tested as part of our corporate governance reviews.

3.9 In line with our Audit Strategy, we have carried out a cost benefit analysis for developing in-house computer forensics capability and as a result have made arrangements to buy these services as required from New Forest District Council. In addition, we continued to develop the skills of computer auditors in the handling of electronic evidence.

Value for money

3.10 Management's arrangements for securing value for money has always been an implicit part of internal audit reviews. 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. The implementation of a new audit management system should facilitate the reporting requirement for this. We will also consider the need for internal audit involvement in specific value for money studies where these are undertaken.

3.11 The scope of corporate governance work will also be extended to include an evaluation of the management arrangements for securing value for money.

4 Change issues

International Standards for Auditing

4.1 The introduction of the International Auditing Standards will result in a change to the external audit approach for the 2005/06 accounts. This requires the auditors to gain a good understanding of all of the systems underpinning the major balance sheet figures and review the controls in place to prevent fraud and irregularity. This will require external audit to repeat some of the internal audit testing, but we will continue to liaise with the Audit Commission to minimise this duplication.

5 Resource implications

Staff input

5.1 The overall objective of the audit strategy continues to be to distribute internal audit resources to provide an appropriate level of assurance for HFRS. The 2006/07 plan has been prepared on the basis of assessed audit need and the proposed changes to the strategy and has not resulted in a significant change in the staff input required.

5.2 Hampshire Audit Services are investing in Audit Management Software during 2006/07 and this is expected to increase the efficiency of the audit process, allowing greater emphasis on testing controls.

6 Recommendation:

6.1 That the Governance Committee approve the revisions to the internal audit strategy for 2006/07.

6.2 That the Governance Committee approve the changes to paragraph 25 of the terms of reference for the internal audit service provided to Hampshire Fire and Rescue Authority (Appendix B).

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.

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