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 appropriate 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 working in practice. Where improvements to controls are required, we are satisfied that appropriate action has been, or, will be 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 2005/06 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:

· comprehensive

· appropriate

· incomplete

· inadequate.

5 Overall assurance

5.1 The internal audit opinion is that Hampshire Fire and Rescue Authority has an appropriate 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 working in practice. Where improvements to controls are required, we are satisfied that appropriate action has been, or, will be 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 2004/05 annual internal audit opinion.

6 Issues raised during 2005/06

Main Findings

6.1 19 reviews were completed in 2005/06 and based on the audit evidence obtained, 16 systems/establishment reviews had an appropriate framework of control and three had an incomplete framework of control to ensure that the activities and procedures achieve the Authority's objectives. Overall, audit testing has shown that the controls in place are operating in practice.

6.2 A summary of the opinions on the reviews carried out in 2005/06 is shown at Appendix D.

Significant findings

6.3 During 2005/06, we audited three systems which were assessed as having a higher risk rating: Payroll Operations, Creditor Payments and Corporate Governance. We are pleased to report that each of the reviews concluded that an appropriate framework of control is in place. However, the payroll audit highlighted that control could be improved further if, in the absence of a separation of duties between personnel and payroll functions, evidence were available of the independent checking undertaken of input data, particularly for new starters.

6.4 Since completion of the payroll review, an error has been reported to us concerning the interpretation and payment of back-pay, to a group of employees, arising from the fire service pay and conditions agreement. Management has requested assistance by providing assurance that the processes and methods used to confirm the extent of, and recovery of the resulting overpayments are robust. This work is ongoing and our findings will be included in the 2006/07 annual report.

6.5 The Travel and Subsistence audit highlighted that Human Resources had recently been allocated the role of budget holder and had insufficient management information to monitor and control expenditure. This increases the risk of a budget deficit occurring and value for money not being achieved. Management has confirmed that training is to be provided on the monitoring reports available.

6.6 We were unable to give assurance on the framework of control in respect of Workshops, as the scope of our work was limited because transaction data had been lost on the Fleet Management System. A new system (TRACE), was implemented on 1 March 2005 and our testing was limited to recent transactions on the new system. However, the audit highlighted several areas for improvement and we have been advised by management that the agreed actions have been implemented. Another full review of Workshops is to be undertaken as part of the 2006/07 audit plan.

6.7 The first review of Corporate Governance has been undertaken, following the approval of the Authority's Code of Corporate Governance in March 2005. Overall, there is an appropriate framework of control for governance, although opportunities for improvement were highlighted in respect of: medium term planning; best value performance planning and the formalising of partnership arrangements. Since the on-site audit took place, our recommendations have been put in place, or, are in progress.

6.8 Whilst a number of other significant recommendations were made during the year, these were significant to the systems concerned and were not material in the context of the Authority as a whole.

Common findings

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

Follow-up work

6.10 Where an assignment concludes that the overall framework of control in an establishment or system is `inadequate', a follow-up review is carried out within one year. There were no inadequate opinions in 2004/05 requiring to be followed-up in 2005/06. The concerns highlighted in 2004/05 regarding the approach to researching and selecting updated networks and communications systems were satisfactorily resolved and the review of the new systems is due to take place in 2007/08.

6.11 We will continue to review the implementation of audit recommendations made in 2005/06 as part of our 2006/07 audit plan. In addition, HFRA has a robust process for monitoring the implementation of agreed actions and progress is reported to the Performance Review Committee.

Irregularities

6.12 There have been no reported financial irregularities during 2005/06.

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 2006

Introduction

The Accounts and Audit Regulations 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 have also been required to sign a more general statement of internal control. 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 appropriate 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 working in practice.

Ejner Knudsen

Chief Internal Auditor

Hampshire Fire and Rescue Authority

1 June 2006

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 2005/06, including those audits carried forward from 2004/05

· 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 2005/06 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 2005/06 is provided in Table 1.

Table 1 - Summary of audit days delivered (2005/06)

Detail	2005/06 Days	Days
Days carried forward from 2004/05		51
Audit plan agreed by Treasurer	213
Variations to the plan	(30)
Revised plan at the year end		183
Total days delivered including delivery of carry forward audits		204
Days carried forward to 2006/07		30

3.2 The 2004/05 carry forward mainly relates to three audits, which were in progress at the end of the year. They were completed during 2005/06 and are included in this report.

3.3 The audit plan was revised during the year to 183 days. The original and revised audit plans are shown at Appendix E and the agreed changes made to the plan reflect the following:

· the postponement of the review of Human Resources and Occupational Health at the request of the Director of Corporate Services, due to the Head of Human Resources leaving the Service and the level of work commitments within the department (-20 days)

· as a result of the outcome of replies to the 2004/05 Fire Station internal control questionnaires, an additional whole time station and retained station were selected for review, however, there was no requirement to carry out the planned short-notice visits (-8 days)

· the Computer Audit team were requested to undertake a post implementation review of CFRMIS and it was agreed that this would replace the planned audit of databases, which was deferred to 2006/07. Subsequently, it was agreed that Computer Audit would contribute advice only to an internal implementation review (-6 days)

· additional days were allocated to review the implementation of the agreed actions arising from the Workshops audit, which was concluded as having an incomplete framework of control (3 days)

· a reduction in the number of days required to complete our review of Fire Station internal control questionnaires (-3 days)

· additional days required arising from our risk assessment of the Travel and Subsistence assignment (4 days).

3.4 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 06.

3.5 The findings for all audit assignments for 2005/06 have been reported in the annual internal audit opinion.

3.6 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 The 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 been late in some instances. This may cause delays in management addressing control weaknesses and increase the risk of loss or embarrassment to the Authority.

5.3 Audit Appraisal Questionnaires (AAQ) have been received from seven of the reviews completed in the year with an average satisfaction score of 95.1% (78.5% 2004/05). This is evidence of a good working relationship between Internal Audit and HFRA.

5.4 Meetings have taken place 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 2005/06 - Summary of main issues reported during 2005/06.

Note 1 - the definitions for opinions are given in Appendix C.