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

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 0844 798 7070.

Contents

Purpose of this document 4

Key messages 5

Audit status 5

Accounts and Statement on Internal Control 6

Unadjusted misstatements 6

Adjustments to the financial statements 6

Accounting practices 6

Systems of internal control 7

Use of resources 9

Work performed 9

Audit fee update 10

Appendix 1 - The Audit Commission's requirements in respect of independence and objectivity 11

Appendix 2 - Audit reports issued 12

Appendix 3 - Proposed auditor's report to the members of Hampshire Fire and Rescue Authority 13

Opinion on the financial statements 13

Conclusion on arrangements for securing economy, efficiency and effectiveness in the use of resources 16

Best value performance plan 17

Certificate 17

Appendix 4 - Management representation letter 18

Appendix 5 - Summary of adjusted misstatements 21

Appendix 6 - Value for money conclusion 22

Purpose of this document

1 In accordance with the Audit Commission's Code of Audit Practice (the Code), this report provides a summary of the work we have carried out during our 2006/07 audit of accounts, the conclusions we have reached and the recommendations we have made to discharge our statutory audit responsibilities to those charged with governance for the Authority at the time they are considering the financial statements.

2 In preparing our report, the Code requires us to comply with the requirements of International Standards on Auditing (United Kingdom & Ireland) - ISA (UK&I) - 260 `Communication of Audit Matters to Those Charged With Governance', by reporting to you matters relating to the audit of the financial statements. Other auditing standards require us to communicate with you in other specific circumstances including:

· where we suspect or detect fraud;

· where there is an inconsistency between the financial statements and other information in documents containing the financial statements; and

· non-compliance with legislative or regulatory requirements and related authorities.

3 We are also required to communicate to you the Audit Commission's requirements in respect of independence and objectivity, and these are set out at Appendix 1.

4 This report has been prepared for presentation to the Authority on 10 September. Members are invited to:

· consider the matters raised in the report before the financial statements are approved;

· approve the representation letter on behalf of the Authority and those charged with governance before we issue our opinion; and

· consider amending the financial statements for unadjusted misstatements, significant qualitative aspects of financial reporting and any recommendations for improvement in the action plan.

5 Our work during the year was performed in line with the plan that we presented to you in March 2006. We have issued separate reports during the year having completed specific aspects of our programme, which are listed in Appendix 2.

Key messages

6 Our audit of the financial statements is complete. The statements were prepared to a good standard. We propose to issue an unqualified audit opinion on or shortly after the meeting of the Governance Committee on 10 September. The draft report is attached at Appendix 3.

7 In our view, the Statement on Internal Control (SIC) has been prepared in accordance with proper practice specified by CIPFA and is consistent with the findings from our audit.

8 Our work on the Authority's arrangements to secure economy, efficiency and effectiveness in its use of resources is also now complete. Our conclusion was that the Authority made proper arrangements to secure economy, efficiency and effectiveness in its use of resources in the 2006/07 year. We also propose issuing an unqualified VFM conclusion on the use of resources. The draft report is attached at Appendix 3.

Audit status

9 At the date of issue of this report our 2006/07 audit is substantially complete.

10 The Authority has taken a positive and constructive approach to our audit and we would like to take this opportunity to express our appreciation for the assistance and co-operation provided.

Accounts and Statement on Internal Control

11 Our work on the financial statements is substantially complete.

12 However, auditors are also required to obtain written confirmation of certain representations from management and those charged with governance before an audit report is issued. We also obtain written representations from management on matters material to the financial statements when other sufficient appropriate audit evidence cannot reasonably be expected to exist.

13 The draft of the letter of representation has been attached as Appendix 4.

Unadjusted misstatements

14 We are required to report to you unadjusted misstatements that we have identified during the course of our audit, other than those that are clearly trivial.

15 There are no unadjusted misstatements for us to bring to the attention of members.

Adjustments to the financial statements

16 We are also required to bring to your attention misstatements that have already been corrected by management where we consider them relevant to your wider governance responsibilities.

17 These are a number of minor matters recorded at Appendix 5, none of which has impacted on the Authority's income and expenditure account or balance sheet values.

Accounting practices

18 We are also required to report to you our view on the qualitative aspects of the Authority's accounting practices and financial reporting.

19 The accounts were prepared to a good standard with a minor observation as follows.

Work in progress

20 Fixed Assets Work in Progress originally included expenditure relating to assets that become operational during the year and which should have been transferred to the correct operational category of fixed asset. It can be difficult to identify the costs associated with discrete parts of large capital projects, for example, Training School costs as part of the HQ development. However, this is needed to avoid assets remaining in the work in progress category when they are in use.

Systems of internal control

21 As part of our audit, we consider the systems of accounting and financial control and report to you any material weaknesses identified.

Goods received clearing account

22 We reported last year that matched items within the clearing account were not being cleared regularly and that there were many items that were more than three months old which should be investigated and cleared.

23 Our follow-up work this year has confirmed that progress has been made and that there is evidence of regular clearing of matched items. However, there were still items that were more than three months old that had not been cleared.

Aged debt profile

24 Our review of the aged debt profile within the accounts receivable ledger found that there were a number of entries which were more than one year-old. Whilst the total value was not material, housekeeping procedures should be improved to ensure that debts that are more than one year-old are regularly reviewed and written off unless there is documented expectation of payment.

Write-off procedures

25 HFRA Financial Regulations require that a register of all debt write-offs should be maintained and that all write-offs are authorised in accordance with the financial regulations. Write-offs up to £1000 should be authorised by the Chief Officer, write-offs from £1000 to £3000 should be authorised by the Chief Officer in consultation with the Treasurer and write-offs over £3000 should be taken to F&GP committee for approval.


26 Our review of write-offs found that some were being authorised by staff using different (HCC) authorisation limits and were not being logged in the write-off register. No write-offs were authorised by the Chief Fire Officer. Whilst we did not find any evidence of inappropriate write-offs, it is important that write-off practices comply with the HFRA financial regulations

Service level agreement with Hampshire CC

27 The SLA with Hampshire CC was due to be updated and signed by June 2006 and has been delayed to incorporate consultant recommendations. This process has still not yet been completed. Whilst there is no evidence that this has caused any problems during the year, written agreement strengthens the position of HFRA should any dispute arise and should be pursued as a priority.

Use of resources

Work performed

28 The Code requires us to reach a conclusion on whether we are satisfied that the Authority has proper arrangements in place for securing economy, efficiency and effectiveness in its use of resources - the value for money conclusion. In meeting this responsibility, we review evidence that is relevant to the Authority's corporate performance management and financial management arrangements across a range of criteria specified by the Audit Commission.

29 Details of our conclusion for each of the criteria specified by the Audit Commission are set out in Appendix 6.

30 Our overall conclusion from the work on the Authority's arrangements was that the Authority had made proper arrangements to secure economy, efficiency and effectiveness in its use of resources in the 2006/07 year.

31 We propose issuing our conclusion on the use of resources after the
10 September Governance Committee meeting. The draft report is attached at Appendix 3.

Audit fee update

32 We reported our fee proposals as part of the Audit Plan for 2006/07. The table below reports the expected outturn fee against that plan.

Table 1 Planned and actual fee for 2006/07

33 The outturn fees are projected to be unchanged from the estimated fees.

Appendix 1 - The Audit Commission's requirements in respect of independence and objectivity

34 We are required to communicate the following matters to those charged with governance:

· the principal threats, if any, to objectivity and independence identified by the auditor, including consideration of all relationships between the Authority, directors and the auditor;

· any safeguards adopted and the reasons why they are considered to be effective;

· any independent partner review;

· the overall assessment of threats and safeguards; and

· information about the general policies and processes for maintaining objectivity and independence.

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

Appendix 2 - Audit reports issued

Appendix 3 - Proposed auditor's report to the members of Hampshire Fire and Rescue Authority

Opinion on the financial statements

36 I have audited the financial statements and the Firefighters' pension fund accounting statements of the Hampshire Fire and Rescue Authority for the year ended 31 March 2007 under the Audit Commission Act 1998. The financial statements comprise the Explanatory Foreword, Income and Expenditure Account, Balance Sheet, Statement of Total Recognised Gains and Losses, Cash Flow Statement and the related notes. The Firefighters' pension fund accounting statements comprise the Fund Account, the Net Assets Statement and the related notes. The financial statements and Firefighters' pension fund accounting statements have been prepared under the accounting policies set out within them.

37 This report is made solely to the Hampshire Fire and Rescue Authority in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 36 of the Statement of Responsibilities of Auditors and of Audited Bodies prepared by the Audit Commission.

Respective responsibilities of the Treasurer and auditor

38 The Treasurer's responsibilities for preparing the financial statements, including the Firefighters' pension fund accounting statements, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006 are set out in the Statement of Responsibilities.

39 My responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

40 I report to you my opinion as to whether the financial statements and the Firefighters' pension fund accounting statements present fairly, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006:

· the financial position of the Authority and its income and expenditure for the year; and

· the financial transactions of its Firefighters' pension fund during the year and the amount and disposition of the fund's assets and liabilities, other than liabilities to pay pensions and other benefits after the end of the scheme year.

41 I review whether the statement on internal control reflects compliance with CIPFA's guidance 'The Statement on Internal Control in Local Government: Meeting the Requirements of the Accounts and Audit Regulations 2003' issued in April 2004. I report if it does not comply with proper practices specified by CIPFA or if the statement is misleading or inconsistent with other information I am aware of from my audit of the financial statements. I am not required to consider, nor have I considered, whether the statement on internal control covers all risks and controls. I am also not required to form an opinion on the effectiveness of the Authority's corporate governance procedures or its risk and control procedures.

42 I read other information published with the financial statements, and consider whether it is consistent with the audited financial statements. I consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the financial statements. My responsibilities do not extend to any other information.

Basis of audit opinion

43 I conducted my audit in accordance with the Audit Commission Act 1998, the Code of Audit Practice issued by the Audit Commission and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Authority's circumstances, consistently applied and adequately disclosed.

44 I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

45 In my opinion:

· the financial statements present fairly, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006, the financial position of the Authority and its income and expenditure for the year then ended; and

· the Firefighters' pension fund accounting statements present fairly, in accordance with the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006, the financial transactions of the Firefighters' pension fund during the year ended 31 March 2007, and the amount and disposition of the fund's assets and liabilities as at 31 March 2007, other than liabilities to pay pensions and other benefits after the end of the scheme year.

Stephen Taylor

District Auditor
North Wing
Southern House
Sparrowgrove
Otterbourne
Hants
SO21 2RU

September 2007

Conclusion on arrangements for securing economy, efficiency and effectiveness in the use of resources

Authority's responsibilities

46 The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to regularly review the adequacy and effectiveness of these arrangements.

47 Under the Local Government Act 1999, the Authority is required to prepare and publish a best value performance plan summarising the Authority's assessment of its performance and position in relation to its statutory duty to make arrangements to ensure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness.

Auditor's responsibilities

48 I am required by the Audit Commission Act 1998 to be satisfied that proper arrangements have been made by the Authority for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires me to report to you my conclusion in relation to proper arrangements, having regard to relevant criteria specified by the Audit Commission for principal local authorities. I report if significant matters have come to my attention which prevent me from concluding that the Authority has made such proper arrangements. I am not required to consider, nor have I considered, whether all aspects of the Authority's arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.

49 I am required by section 7 of the Local Government Act 1999 to carry out an audit of the Authority's best value performance plan and issue a report:

· certifying that I have done so;

· stating whether I believe that the plan has been prepared and published in accordance with statutory requirements set out in section 6 of the Local Government Act 1999 and statutory guidance; and

· where relevant, making any recommendations under section 7 of the Local Government Act 1999.

Conclusion

50 I have undertaken my audit in accordance with the Code of Audit Practice and having regard to the criteria for principal local authorities specified by the Audit Commission and published in December 2006, I am satisfied that, in all significant respects, Hampshire Fire and Rescue Authority made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2007.

Best value performance plan

51 I issued my statutory report on the audit of the Authority's best value performance plan for the financial year 2006/07 last year. I did not identify any matters to be reported to the Authority and did not make any recommendations on procedures in relation to the plan.

Certificate

52 I certify that I have completed the audit of the accounts in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.

Stephen Taylor

District Auditor
North Wing
Southern House
Sparrowgrove
Otterbourne
Hants
SO21 2RU

September 2007

Appendix 4 - Management representation letter

Hampshire Fire and Rescue Authority - 2006/07 accounts

53 We confirm to the best of our knowledge and belief, having made appropriate enquiries of other officers of Hampshire Fire and Rescue Authority, the following representations given to you in connection with your audit of the Authority's financial statements for the year ended 31 March 2007.

54 We acknowledge the Authority's statutory responsibilities to prepare and approve the financial statements in accordance with proper practices as identified in relevant legislation or guidance.

55 These representations rely also on the Statement of Internal Control, the system of internal financial control, and the Treasurer's responsibilities for the Statement of accounts. The representations also place great reliance on the work of both internal and external audit.

Specific representations

56 Sufficient controls have been established, and have operated, to identify, classify and record correctly transactions processed via the Authority's bank account.

57 There are no other material amounts relating to unfunded liabilities, curtailments or settlements of past service costs relating to pension provision other than those which have been properly recorded and disclosed in the financial statements.

58 The steps taken by the Authority to confirm that the data used by the actuary to calculate FRS 17 disclosure information continues to be appropriate and representative of the membership profile as at 31 March 2007.

59 The Authority has no plans or intentions that may materially alter the carrying value or classification of assets or liabilities reflected in the financial statements.

Supporting records

60 All the accounting records have been made available to you for the purpose of your audit and all the transactions undertaken by the Authority have been properly reflected and recorded in the accounting records. All other records and related information, including minutes of all members meetings, have been made available to you.

Related party transactions

61 Based on the disclosure made by members and officers we confirm the completeness of the information provided regarding the identification of related parties.

62 The identity of, and balances and transactions with, related parties have been properly recorded and where appropriate, adequately disclosed in the financial statements.

Contingent liabilities

63 There are no other contingent liabilities, other than those that have been properly recorded and disclosed in the financial statements. In particular:

· there is no significant pending or threatened litigation, other than those already disclosed in the financial statements;

· there are no material commitments or contractual issues, other than those already disclosed in the financial statements; and

· no financial guarantees have been given to third parties.

Law, regulations and codes of practice

64 The clerk has not declared any instances of non-compliance with laws, regulations and codes of practice, likely to have a significant effect on the finances or operations of the Authority.

65 We acknowledge our responsibility for the design and implementation of internal control systems to prevent and detect error.

66 There have been no:

· irregularities involving management or employees who have significant roles in the system of internal accounting control;

· irregularities involving other employees that could have a material effect on the financial statements; and

· communications from regulatory agencies concerning non-compliance with or deficiencies on, financial reporting practices which could have a material effect on the financial statements.

Post balance sheet events

Since the date of approval of the financial statements by the Finance and General Purposes Committee, no additional significant post balance sheet events that have occurred which would require additional adjustment or disclosure in the financial statements.


Signed on behalf of Hampshire Fire and Rescue Authority

Signed: ........................

Name: J Pittam

Position: Treasurer

Date: ........................

Signed: ........................

Name: Councillor PRC Hutcheson

Position: Chairman of the Governance Committee

Date: ........................

Appendix 5 - Summary of adjusted misstatements

Appendix 6 - Value for money conclusion

67 The Audit Commission has published, in accordance with the Code of Audit Practice, 12 criteria on which auditors are required to reach a conclusion on the adequacy of an audited body's arrangements for economy, efficiency and effectiveness in its use of resources.

68 Some of the criteria are linked to the use of resources assessment (UoR) key lines of enquiry (KLoEs). A score of Level 2 or higher under the KLoEs will normally result in an assessment that the Authority has adequate arrangements in place for the purposes of the Code criteria. The Code criteria and the linked UoR KLoEs are show in the table below.