External audit is an essential element in the process of accountability for public money and makes an important contribution to the stewardship of public resources and the corporate governance of public services.

Audit in the public sector is underpinned by three fundamental principles:

· auditors are appointed independently from the bodies being audited;

· the scope of auditors' work is extended to cover not only the audit of financial statements but also value for money and the conduct of public business; and

· auditors may report aspects of their work widely to the public and other key stakeholders.

The duties and powers of auditors appointed by the Audit Commission are set out in the Audit Commission Act 1998 and the Local Government Act 1999 and the Commission's statutory Code of Audit Practice. Under the Code of Audit Practice, appointed auditors are also required to comply with the current professional standards issued by the independent Auditing Practices Board.

Appointed auditors act quite separately from the Commission and in meeting their statutory responsibilities are required to exercise their professional judgement independently of both the Commission and the audited body.

Status of our reports to the Authority

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.

Copies of this report

If you require further copies of this report, or a copy in large print, in Braille,
on tape, or in a language other than English, please call 0845 056 0566.

Contents

Introduction 6

Our responsibilities 6

Relationship management and CPA 8

The fee 10

Summary of key audit risks 11

Value for money conclusion 11

Best value performance plan 13

Financial statements 13

Whole of government accounts 16

Other information 17

Expected outputs 17

The team 17

Voluntary improvement work 19

Future audit plans 20

Appendix 1 - Audit fee 21

Assumptions 22

Specific actions Hampshire Fire and Rescue service could take to reduce its audit fees 23

Process for agreeing any changes in audit fees 24

Appendix 2 - Criteria to inform the auditor's conclusion on proper arrangements for securing economy efficiency and effectiveness in the use of resources 25

Appendix 3 - Planned outputs 28

Appendix 4 - The Audit Commission's requirements in respect of independence and objectivity 31

Introduction

1 This plan sets out the audit and inspection work that we propose to undertake in 2006/07. The plan has been drawn up from our risk-based approach to audit planning and reflects:

· our responsibilities under the Code of Audit Practice;

· work specified by the Audit Commission for 2006/07;

· your local risks and improvement priorities; and

· current national risks relevant to your local circumstances.

Our responsibilities

2 In carrying out our audit duties, we have to comply with the statutory requirements governing them, and in particular:

· the Audit Commission Act 1998;

· the Code of Audit Practice (the Code); and

· the Local Government Act 1999.

3 The Code defines auditors' responsibilities in relation to:

· the financial statements of audited bodies; and

· audited bodies' arrangements for securing economy, efficiency and effectiveness in their use of resources. Auditors are now required to draw a positive conclusion regarding the Fire Authority's arrangements for ensuring value for money in its use of resources. We will give the first such conclusion by 30 September 2006 as part of the 2005/06 audit.

Relationship management and CPA

4 The Audit Commission has appointed Stephen Taylor as the Relationship Manager (RM) for the Hampshire Fire and Rescue Authority. The RM is the Commission's primary point of contact with the Authority and is also the interface at the local level between the Commission and other inspectorates, Government Office and other stakeholders.

5 The Audit Commission's engagement with fire and rescue services will encompass the following.

· A service assessment, consistent with the Local Services Inspection Forum principles that will form part of the CPA for single tier and county councils from 2006 onwards. The methodology used will be applicable to all types of fire and rescue authority and will have a greater emphasis on service delivery than fire CPA, including an element on operational performance delivered by Her Majesty's Fire Service Inspectorate. The results of this service assessment are intended to be published annually starting in
December 2006.

· A use of resources judgement for all fire and rescue authorities. This will assess the Authority across a broad range of financial issues and provide a scored judgement on whether the Fire and Rescue Authority is providing value for money.

· An assessment of improvement, or deterioration, in performance measured through a scored direction of travel assessment. The assessment will be outcome focused and be reported in the Fire and Rescue Authority's Annual Audit and Inspection Letter along with the use of resources judgement by March 2007.

6 These assessments will provide a clear picture of the progress a fire authority has made since its baseline CPA. They will not result in a change in CPA category. However, they will be important in any future consideration of whether further work is appropriate in order to determine a re-categorisation (up or down) at some point in the future.

7 The costs of the RM input and the Direction of Travel assessment will be reimbursed to the Audit Commission through a grant from the ODPM. The additional fee for use of resources work will be refunded to the Fire Authority directly by the ODPM once the actual cost is known.

The fee

8 For 2006/07, the Audit Commission has changed its fee scale structure and details are set out in the Commission's Work Programme and Fee scales 2006/07. Audit fees are based on a number of variables, including the type, size, location and complexity of the audited body and the national and local risks.

9 The total gross fee estimate for the Hampshire Fire and Rescue Service (HFRS) for 2006/07 is £68,033 (2005/06: £52,177). This fee includes all work identified in this plan unless specifically excluded. HFRS will be reimbursed for the use of resources judgement work (£12,735). Further details are provided in Appendix 1 which includes specific audit risk factors, the assumptions made when determining the audit fee, specific actions HFRS could take to reduce its audit fees and the process for agreeing any additional fees.

10 Changes to the plan and the fee may be necessary if our risk assessment changes during the course of the audit. This is particularly relevant to the work related to the opinion on the 2006/07 accounts since we have yet to audit the accounts for 2005/06. We will formally advise you of any changes if this is the case.

Summary of key audit risks

11 This section summarises our assessment and the planned response to the key audit risks which may have an impact on our objectives to:

· provide an opinion on your financial statements;

· provide a conclusion on your use of resources;

· carry out audit work as specified by the Audit Commission; and

· provide a report on the Authority's best value performance plan.

12 The expected outputs from this work are outlined in Appendix 3.

Value for money conclusion

13 We will focus our work so as to enable us to conclude whether you have put in place proper arrangements to secure economy, efficiency and effectiveness with regard to the use of resources (the value for money conclusion).

14 The Audit Commission has developed relevant criteria for auditors to apply in reaching our value for money conclusion as required under the Code of Audit Practice. These criteria are listed in Appendix 2. Sources of assurance will include the auditor's cumulative knowledge and experience including the results of previous work and the work of other regulatory agencies (including Internal Audit).

15 From our initial risk based planning assessment we have identified the following areas of audit risk to be addressed before we give our VFM conclusion.

Table 1 Summary of use of resources audit risks

Best value performance plan

16 We are required to consider and report on whether or not you have complied with legislation and statutory guidance in respect of the preparation and publication of your best value performance plan (BVPP). In 2006/07 the work will be focused on the Authority's overall arrangements to secure data quality, which will support our value for money conclusion.

Financial statements

17 We will carry out our audit of the 2006/07 financial statements and have regard to the International Standards on Auditing UK and Ireland (ISA UKIs). The ISAs (UK &I) place a more onerous burden on the auditor and we will fully understand the impact when we have complerted our 2005/06 audit.

18 We are also required to review whether the Statement on Internal Control has been presented in accordance with relevant requirements and to report if it does not meet these requirements or if the Statement is misleading or inconsistent with our knowledge of the Authority.

19 On the basis of our preliminary work to date we have identified the following audit risks to be addressed before we give our opinion.

Table 2 Summary of opinion risks

20 Our fee estimate for 2006/07 is based on the assumption that the current standard of working papers will be maintained and that Internal Audit will complete their planned work on key information systems to the agreed quality and by the agreed date and that the accounts will be prepared and fully supported by working papers by end of June.

21

22 We have yet to undertake the audit of the 2005/06 financial statements and our 2006/07 financial statement audit planning will continue as the year progresses. This will take account of:

· the 2005/06 opinion audit and the impact of the first year of ISAs (UK&I);

· our documentation and initial testing of material systems;

· our assessment of the closedown arrangements; and

· any changes in financial reporting requirements.

23 When we have finalised our risk assessment in respect of your financial statements, we will outline our specific approach, including any impact on the fee quoted above.

Whole of Government Accounts

24 The Government is introducing Whole of Government accounts (WGA) in order to produce consolidated accounts for the whole public sector. WGA will include the accounts of fire authorities and WGA data returns will be required to be audited. A supplementary fee will be levied for the 'dry run' year in 2005/06 and we have included an estimate of £1,500 in this plan on the assumption that the workload will be similar.

Other information

Expected outputs

25 The main expected outputs from our work are listed in Appendix 3.

The team

Table 3 The team

26 We are not aware of any relationships that may affect the independence and objectivity of the team, and which are required to be disclosed under auditing and ethical standards.

27 We comply with the ethical standards promulgated by the Auditing Practices Board and with the Commission's requirements in respect of independence and objectivity as set out at Appendix 4.

Voluntary improvement work

28 We will keep under review the scope for work associated with Hampshire Fire and Rescue Service input to the reconfiguration of the Isle of Wight Fire and Rescue Service

Future audit plans

29 As part of our planning process, we have taken the opportunity to look at potential issues for future years' programmes. Key areas identified include:

· the Gershon agenda and the delivery of financial savings; and

· reconfiguration of the Isle of Wight Fire and Rescue Service.

30 We will discuss these in more detail as the audit year progresses.

Appendix 1 - Audit fee

Table 4 Audit fee

31 The gross fee (plus VAT) will be charged in 12 equal instalments from May 2006 to April 2007.

Assumptions

32 In setting the audit fee we have assumed:

· you will inform us of significant developments impacting on our audit;

· Internal Audit meets the appropriate professional standards;

· Internal Audit undertakes appropriate work on material information systems that provide figures in the financial statements sufficient that we can place reliance for the purposes of our audit recognising the shift in requirements introduced by the International Standards on Auditing (ISA);

· officers will provide good quality working papers and records to support the financial statements by early July;

· officers will provide requested information within agreed timescales; and

· officers will continue to provide prompt responses to draft reports.

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

34 Changes to the plan will be agreed with you. These may be required if:

· new risks emerge;

· additional work is required of us by the Audit Commission or other regulators; and

· there are any changes to financial reporting requirements, professional auditing standards or legislation which results in additional audit work.

Specific actions Hampshire Fire and Rescue service could take to reduce its audit fees

35 The Audit Commission requires its auditors to inform an Authority of specific actions it could take to reduce its audit fees. We have established good working relationships with the officers of the Fire Authority, and have not identified significant weaknesses. The fee has been calculated on the basis that this situation will continue.

Process for agreeing any changes in audit fees

36 If we need to amend the audit (or inspection) fees during the course of this plan, we will provide a report outlining the reasons why the fee needs to change for discussion and agreement.

Appendix 2 - Criteria to inform the auditor's conclusion on proper arrangements for securing economy efficiency and effectiveness in the use of resources

Arrangements for establishing strategic and operational objectives and for determining policy and making decisions

1 The body has put in place arrangements for setting, reviewing and implementing its strategic and operational objectives.

Arrangements for ensuring that services meet the needs of users and taxpayers, and for engaging with the wider community

2 The body has put in place channels of communication with service users and other stakeholders including partners, and there are monitoring arrangements to ensure that key messages about services are taken into account.

Arrangements for monitoring and reviewing performance, including arrangements to ensure data quality

3 The body has put in place arrangements for monitoring and scrutiny of performance, to identify potential variances against strategic objectives, standards and targets, for taking action where necessary, and reporting to members.

4 The body has put in place arrangements to monitor the quality of its published performance information, and to report the results to members.

Arrangements for ensuring compliance with established policies, procedures, laws and regulations

5 The body has put in place arrangements to maintain a sound system of internal control.

Arrangements for identifying, evaluating and managing operational and financial risks and opportunities, including those arising from involvement in partnerships and joint working

6 The body has put in place arrangements to manage its significant business risks.

Arrangements for managing its financial and other resources, including arrangements to safeguard the financial standing of the audited body and for ensuring compliance with the general duty of best value (where applicable)

7 The body has put in place arrangements to manage and improve value for money.

8 The body has put in place a medium-term financial strategy, budgets and a capital programme that are soundly based and designed to deliver its strategic priorities.

9 The body has put in place arrangements to ensure that its spending matches its available resources.

10 The body has put in place arrangements for managing performance against budgets.

11 The body has put in place arrangements for the management of its asset base. (NB only applies where, in the auditor's judgement, the audited body has a significant fixed asset base).

Arrangements for ensuring that the audited body's affairs are managed in accordance with proper standards of conduct, and to prevent and detect fraud and corruption

12 The body has put in place arrangements that are designed to promote and ensure probity and propriety in the conduct of its business.

Appendix 3 - Planned outputs

1 Our reports will be discussed and agreed with the appropriate officers before being issued to the Audit Committee.

Table 5

*To be revisited during the year to reflect outcome of 2005/06 opinion audit and 2006/07 interim visit.

Appendix 4 - The Audit Commission's requirements in respect of independence and objectivity

1 Auditors appointed by the Audit Commission are subject to the Code of Audit Practice (the Code) which includes the requirement to comply with ISA UKIs when auditing the financial statements. Professional standards require auditors to communicate to those charged with governance, at least annually, all relationships that may bear on the firm's independence and the objectivity of the audit engagement partner and audit staff. Standards also place requirements on auditors in relation to integrity, objectivity and independence.

2 The standards define `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.

3 Auditors are required by the Code to:

· carry out their work with independence and objectivity;

· exercise their professional judgement and act independently of both the Commission and the audited body;

· maintain an objective attitude at all times and not act in any way that might give rise to, or be perceived to give rise to, a conflict of interest; and

· resist any improper attempt to influence their judgement in the conduct of the audit.

4 In addition, the Code specifies that auditors should not carry out work for an audited body that does not relate directly to the discharge of the auditors' functions under the Code. If the Authority invites us to carry out risk-based work in a particular area, which cannot otherwise be justified to support our audit conclusions, it will be clearly differentiated as work carried out under section 35 of the Audit Commission Act 1998.

5 The Code also states that the Commission issues guidance under its powers to appoint auditors and to determine their terms of appointment. The Standing Guidance for Auditors includes several references to arrangements designed to support and reinforce the requirements relating to independence, which auditors must comply with. These are as follows:

· any staff involved on Commission work who wish to engage in political activity should obtain prior approval from the Partner or Regional Director;

· audit staff are expected not to accept appointments as lay school inspectors;

·

· firms are expected not to risk damaging working relationships by bidding for work within an audited body's area in direct competition with the body's own staff without having discussed and agreed a local protocol with the body concerned;

· auditors are expected to comply with the Commission's statements on firms not providing personal financial or tax advice to certain senior individuals at their audited bodies, auditors' conflicts of interest in relation to PFI procurement at audited bodies, and disposal of consultancy practices and auditors' independence;

· auditors appointed by the Commission should not accept engagements which involve commenting on the performance of other Commission auditors on Commission work without first consulting the Commission;

· auditors are expected to comply with the Commission's policy for both the District Auditor/Partner and the second in command (Senior Manager/
Manager) to be changed on each audit at least once every five years with effect from 1 April 2003 (subject to agreed transitional arrangements);

· audit suppliers are required to obtain the Commission's written approval prior to changing any District Auditor or Audit Partner/Director in respect of each audited body; and

· the Commission must be notified of any change of second in command within one month of making the change. Where a new Partner/Director or second in command has not previously undertaken audits under the Audit Commission Act 1998 or has not previously worked for the audit supplier, the audit supplier is required to provide brief details of the individual's relevant qualifications, skills and experience.