Contents

Summary 3

Financial statements and Annual Governance Statement 4

Value for money 8

Formal audit powers 12

Independence 13

Appendix 1 - Draft management representation letter 15

Appendix 2 - Schedule of errors and uncertainties 19

Appendix 3 - Draft auditor's opinion 20

Summary

Purpose

1 This report summarises the findings from our 2007/08 audit, which are substantially complete. It identifies the key issues that you should consider before we issue our opinion, conclusion, and certificate.

2 This report includes only matters of governance interest that have come to our attention in performing our audit. Our audit is not designed to identify all matters that might be relevant to you.

Financial statements

3 Whilst our work on the financial statements remains in progress, based on our findings to date, we expect to issue an unqualified opinion on the financial statements. A number of presentational adjustments have been agreed for action with management to achieve compliance with the SORP. We are continuing discussions with management on some aspects of the accounts that may require further amendment, although we do not anticipate these will be material to our opinion.

4 The financial statements submitted for audit were complete, included the annual governance statement, and were supported by sound working papers. There was one significant difference between the approved accounts and those submitted for audit which related to a post balance sheet event note for revised pension commutation factors where the advice was issued in July 2008. The accounts were amended in line with the guidance received.

Value for Money

5 We expect to issue an unqualified conclusion on the Authority's arrangements for securing economy, efficiency, and effectiveness in the use of resources.

Formal audit powers

6 We have not and do not propose to exercise any formal statutory powers available to the auditor.

Next steps

7 We ask the Governance Committee to:

· consider the matters raised in the report before recommending the financial statements for approval;

· agree to adjust the financial statements as set out in our recommendations;

· approve the representation letter on behalf of the Authority before we issue our opinion, conclusion and certificate; and

· agree the proposed action plan.

Financial statements and Annual Governance Statement

8 The Authority's financial statements and Annual Governance Statement are important means by which it accounts for its stewardship of public funds. As Authority members you have final responsibility for these statements, so it is important that you consider our findings before we proceed to issue our opinion on the financial statements..

9 In planning our audit we identified specific risks and areas of judgement on which to focus during our audit: we report to you the findings of our work in those areas.

10 Auditing standards also require us to report to you:

· the draft representation letter which we are asking both you and management to sign;

· our views about the Authority's accounting practices and financial reporting;

· errors in the financial statements;

· any expected modification to our report;

· weaknesses in internal control; and

· certain other matters.

Key areas of judgement and audit risk

11 In planning our audit we identified key areas of judgement and audit risk to be considered as part of our audit. Our findings are set out in Table 1.

Table 1 Key areas of judgement and audit risk

Accounting policies and financial reporting

12 We consider the qualitative aspects of your financial reporting. There are no matters which we wish to raise with you under this heading. The accounts presented for audit, after processing agreed minor amendments have been assessed as compliant with the SORP.

Errors in the financial statements

13 We identified a number of minor errors in the financial statements and reported these to management. Management has either agreed to adjust the financial statements for these errors or the value of the error has been assessed as trivial in all except two areas as outlined below. The errors identified, agreed adjustments and clearly trivial items are summarised in our Accounts Memorandum to management.

Pension Fund

14 DCLG identified an error in the pension fund accounting for transfers in which management has not adjusted the 2007/08 financial statements. There were 4 transfers in shown in the 2007/08 accounts that related to starters from 2005/06. Subsequent advice stated that the 2005/06 entries were not valid for the new pension fund arrangement.

15 As a result the 2007/08 Pension Fund Account transfers-in is overstated by £47,000 and the Pension Fund Net Assets Statement for top-up grant receivable from the Government is understated by £47,000. Whilst this change would be trivial to the Authority's accounts it is non-trivial as regards the pension fund accounts.

16 However to adjust the pension fund accounts would also require numerous small adjustment to the Authority accounts would affect many entries. Management opted instead to adjust this entry in the 2008/09 accounts on the basis that the effect of the uncorrected errors, individually and collectively, is immaterial. This adjustment has already been actioned in 2008/09. Whilst we accept the management decision not to adjust the 2007/08 accounts for this item in giving our opinion, we ask you to reflect this decision in your representation letter.

FRAML

17 The audit currently remains in progress and we are validating agreed changes to the updated financial statements. There is one issue relating to the accounting for the Authority's interest in the Fire and Rescue Assurance Mutual Limited (FRAML) that we are still considering with officers.

18 We have previously obtained advice that this arrangement should be treated as a Joint Arrangement not an Entity (JANE) and that there was no requirement therefore to produce group accounts. Accounting for this arrangement as a JANE should lead to the Authority showing in its balance sheet its share of the FRAML assets, liabilities, and cash flows. Currently the accounts show the interest in the FRAML as both an investment and a share of assets and liabilities. However, this has resulted in creation of a FRAML reserve and an entry on the Statement of Recognised Gains and Losses (STRGL). Accounting for FRAML as a JANE should not result in an entry in the STRGL.

19 We are seeking updated guidance on this issue and discussing with officers potential adjustments that may be required to the statements. We hope to agree suitable amended statements with officers prior to giving our opinion. However, if we cannot agree the accounting treatment for this it will remain as an unadjusted misstatement and again we will need you to refer to the reasons for non-adjustment within your letter of representation.

20 This draft governance report is based on the assumption that all audit adjustments agreed with management are effected. Any uncertainties and errors remaining unadjusted at the time of the Governance Committee meeting will be scheduled in Appendix 2; otherwise the schedule and this paragraph will be deleted.

Draft representation letter

21 Before we issue our opinion, auditing standards require us to obtain from you and management written representations that:

· you acknowledge your collective responsibility for preparing financial statements in accordance with the applicable financial reporting framework;

· you have approved the financial statements;

· you acknowledge your responsibility for the design and implementation of internal controls to prevent and detect fraud and error;

· you have told me the results of your assessment of the risk that the financial statements might be materially misstated because of fraud;

· you have told me of any actual or suspected fraud by management, employees with significant roles in internal control, or others (where the fraud could have a material impact on the financial statements);

· you have told me of any allegations of fraud or suspected fraud affecting the financial statements communicated by employees, former employees, regulators or others;

· you have told me about all known actual or possible non-compliance with laws and regulations whose effects should be considered when preparing financial statements;

· you have assessed the reasonableness of significant assumptions, including whether they appropriately reflect management's intent and ability to carry out specific courses of action on behalf of the Authority where relevant to the fair value measurements or disclosures;

· you are satisfied that all related parties requiring disclosure in the financial statements have been disclosed and that the disclosure is adequate;

· you are satisfied that the individual or collective impact of errors which we have identified, but you have not corrected, is not material; and

· cover areas where other sufficient appropriate evidence cannot reasonably be expected to exist, for example the completeness of the disclosure of contingent liabilities.

22 Appendix 1 contains the draft of the letter of representation which we seek from you.

The audit report

23 We plan to issue an unmodified report including an unqualified opinion on the financial statements. Appendix 3 contains a copy of our draft report.

Material weaknesses in internal control

24 We have not identified any weakness in the design or operation of an internal control which might result in a material error in your financial statements of which you are not aware. Our findings at the interim systems audit have already been reported to you.

Other matters

25 There are no other matters which auditing standards require me to report to you.

Value for money

26 We are required to conclude whether the Authority has put in place adequate corporate arrangements for securing economy, efficiency, and effectiveness in its use of resources. We assess your arrangements against 12 criteria specified by the Audit Commission as set out in table 2 below. Our conclusion is informed by our work on Use of Resources, a scored judgement reported to the Commission.

27 We have assessed the arrangements of the Authority as adequate in all 12 areas and we therefore propose to issue an unqualified conclusion.

Table 2 VFM Conclusion Criteria

Formal audit powers

28 We have:

· a power to issue a public interest report. We do so where we believe this is necessary to draw a matter to your attention, or to that of the public;

· a power to apply to court for a declaration that an item in the Authority's accounts is contrary to law;

· a power to issue an advisory notice. An advisory notice requires the Authority to meet and consider the notice before:

_ making a decision that might give rise to unlawful expenditure; or

_ taking an unlawful course of action that would give rise to a loss; or

_ making unlawful entry in the accounts; and

· a power to seek judicial review of a decision of the Authority.

29 We have not and do not propose to exercise these powers.

Independence

30 The Code of Audit Practice and the APB's Ethical Standards with which auditors must comply require that auditors act, and are seen to act, with integrity, objectivity and independence.

31 We confirm that we comply with the APB's Ethical Standards, that we are independent, and that our objectivity is not compromised.

32 We communicate to you:

· any relationships between us and the Authority, its members or senior management which might affect our objectivity and independence and any safeguards put in place;

· total fees charged to you for audit and non-audit services; and

· our arrangements to ensure independence and objectivity.

Relationships with the Authority

33 We have identified no relationships that might affect objectivity and independence.

Audit fees

34 We reported our fee proposals as part of the Audit Plan for 2007/08. The table below reports the forecast outturn fee against that plan.

Table 3 Audit fees

35 The analysis shows that we currently expect that our fees for audit of the financial statements to be contained within the original planned fee. However, as a result of additional work we have performed associated with the new requirements of the SORP 2007 we may need to increase our fee. We will be in a position to advise the final audit fee to the Treasurer upon conclusion of the audit.

Our arrangements to ensure independence and objectivity

36 We have comprehensive procedures to ensure independence and objectivity. These are outlined in Table 3.

Table 4 Arrangements to ensure independence and objectivity

Appendix 1 - Draft management representation letter

To: Phil Sharman

District Auditor

Audit Commission,

Unit 5, Isis Business Centre,

Horspath Road,

Cowley,

OXFORD

OX4 2RD

Hampshire Fire & Rescue Authority - Audit for the year ended 31 March 2008

37 I confirm to the best of my knowledge and belief, having made appropriate enquiries of other [insert relevant details e.g.; directors, officers, officials] of Hampshire Fire & 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 2008. All representations cover the Authority's accounts included within the financial statements

Compliance with the statutory authorities

38 I acknowledge my responsibility under the relevant statutory authorities for preparing the financial statements in accordance with the Code of Practice for Local Authority Accounting in the United Kingdom: A Statement of Recommended Practice which present fairly the financial position and financial performance of the Authority and for making accurate representations to you.

Uncorrected misstatements

39 I confirm that I believe that the effects of the uncorrected financial statements misstatements listed in the attached schedule are not material to the financial statements, either individually or in aggregate. These misstatements have been discussed with those charged with governance within the Authority and the reasons for not correcting these items are as follows;

· reason 1 etc;

· reason 2

Supporting records

40 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 Authority and Executive Committee meetings, have been made available to you.

Irregularities

41 I acknowledge my responsibility for the design and implementation of internal control systems to prevent and detect fraud or error.

42 There have been no:

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

· irregularities involving other employees which could have a material effect on the financial statements; or

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

· I also confirm that I have disclosed:

_ my knowledge of fraud, or suspected fraud, involving either management, employees who have significant roles in internal control, or others, where fraud could have a material effect on the financial statements; and

_ my knowledge of any allegations of fraud, or suspected fraud, affecting the entity's financial statements communicated by employees, former employees, analysts, regulators or others.

Law, regulations, contractual arrangements and codes of practice

43 There are no 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.

44 The Authority has complied with all aspects of contractual arrangements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance.

Fair Values

45 I confirm the reasonableness of the significant assumptions within the financial statements. I confirm we have considered:

· the appropriateness of the measurement method;

· the basis used by management to overcome the presumption under the financial reporting framework;

· the completeness and appropriateness under the financial reporting framework; and

· if subsequent events [require/do not require] adjustment to the fair value measurement.

Assets

46 The following have been properly recorded and, where appropriate, adequately disclosed in the financial statements:

· losses arising from sale & purchase commitments;

· agreements & options to buy back assets previously sold; and

· assets pledged as collateral.

Compensating arrangements

47 There are no formal or informal compensating balancing arrangements with any of our cash and investment accounts.  Except as disclosed in Note X to the financial statements we have no other lines of credit arrangements.

Contingent liabilities

48 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; [and]

· 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.]

Related party transactions

49 I confirm the completeness of the information disclosed regarding the identification of related parties.

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

Post balance sheet events

51 Since the date of approval of the financial statements by the Authority, no additional significant post balance sheet events have occurred which would require additional adjustment or disclosure in the financial statements.

52 The Authority has no plans or intentions which may materially alter the carrying value or classification of assets and liabilities reflected in the financial statements.
If adoption of the financial statements and the representation are on the same day this paragraph is not required.

Specific representations:

53 There are no other material amounts disclosed in the financial statements which the Authority consider require further representation.

Signed on behalf of Hampshire Fire & Rescue Authority

I confirm that the this letter has been discussed and agreed by the Authority on [date]

Signed

Name

Position

Date September 2008

Appendix 2 - Schedule of errors and uncertainties

54 This draft governance report is based on the assumption that all audit adjustments agreed with management are effected. Any uncertainties and errors remaining unadjusted at the time of the Authority meeting will be scheduled in a revised version of this appendix; otherwise the error schedule and this paragraph will be deleted.

Table 5 Unadjusted errors

Appendix 3 - Draft auditor's opinion

Independent auditor's report to the Members of Hampshire Fire & Rescue Authority

Opinion on the financial statements

55 I have audited the accounting statements, the firefighters' pension fund accounting statements and related notes of Hampshire Fire & Rescue Authority for the year ended 31 March 2008 under the Audit Commission Act 1998. The accounting statements comprise the 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.

56 This report is made solely to the members of Hampshire Fire & 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

57 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 2007 are set out in the Statement of Responsibilities.

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

59 I report to you my opinion as to whether the accounting statements, the firefighters' pension fund accounting statements and related notes present fairly, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007:

· 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.

60 I review whether the governance statement reflects compliance with `Delivering Good Governance in Local Government: A Framework' published by CIPFA/SOLACE in June 2007. I report if it does not comply with proper practices specified by CIPFA/SOLACE 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 governance statement covers all risks and controls. Neither am I required to form an opinion on the effectiveness of the Authority's corporate governance procedures or its risk and control procedures.

61 I read other information published with the accounting statements, the firefighters' pension fund accounting statements and related notes and consider whether it is consistent with the audited accounting statements, the firefighters' pension fund accounting statements and related notes. This other information comprises the Explanatory Foreword and the Annual Report. I consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the accounting statements, the firefighters' pension fund accounting statements and related notes. My responsibilities do not extend to any other information.

Basis of audit opinion

62 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 accounting statements, the firefighters' pension fund accounting statements and related notes. It also includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the accounting statements, the firefighters' pension fund accounting statements and related notes, and of whether the accounting policies are appropriate to the Authority's circumstances, consistently applied and adequately disclosed.

63 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 accounting statements, the firefighters' pension fund accounting statements and related notes 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 accounting statements, the firefighters' pension fund accounting statements and related notes.

Opinion

64 In my opinion:

· The accounting statements and related notes present fairly, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007, the financial position of the Authority as at 31 March 2008 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 2007, the financial transactions of the firefighters' pension fund during the year ended 31 March 2008 and the amount and disposition of the fund's assets and liabilities as at 31 March 2008, other than liabilities to pay pensions and other benefits after the end of the scheme year.

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

Authority's Responsibilities

65 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 regularly to review the adequacy and effectiveness of these arrangements.

Auditor's Responsibilities

66 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 fire and rescue 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.

Conclusion

67 I have undertaken my audit in accordance with the Code of Audit Practice and having regard to the criteria for fire and rescue authorities specified by the Audit Commission and published in December 2006, I am satisfied that, in all significant respects, Hampshire Fire & Rescue Authority made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2008.

Best Value Performance Plan

68 We issued our statutory report on the audit of the authority's best value performance plan for the financial year 2007/08 on 21 December 2007. We 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

69 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.

Phil Sharman

District Auditor

Audit Commission,

Unit 5, Isis

Business Centre,

Horspath Road,

Cowley,

OXFORD

OX4 2RD

30 September 2008