The Audit Plan – template user guide
Contents
1. Grant Thornton The Audit Plan for Cheshire East Council Year ended 31 March 2014 14 March 2014 Jon Roberts Engagement lead T 0121 232 5410 E jon roberts uk gt com Allison Rhodes Manager T 0121 232 5285 E _ allison rhodes uk gt com Naomi Povey Executive T 0121 232 5294 E naomi j povey uk gt com The contents of this report relate only to the matters which have come to our attention which we believe need to be reported to you as part of our audit process It is not a comprehensive record of all the relevant matters which may be subject to change and in particular we cannot be held responsible to you for reporting all of the risks which may affect the Council or any weaknesses in your internal controls This report has been prepared solely for your benefit and should not be quoted in whole or in part without our prior written consent We do not accept any responsibility for any loss occasioned to any third party acting or refraining from acting on the basis of the content of this report as this report was not prepared for nor intended for any other purpose Contents Section Understanding your business Developments relevant to your business and the audit Our audit approach Significant risks identified Other risks identified Value for Money Interim audit work Key dates Fees and independence Communication of audit matters with those charged with governance 2014 Grant Thornton UK LLP2. Page co N A a A 10 11 12 13 15 Understanding your business In planning our audit we need to understand the challenges and opportunities the Council is facing We set out a summary of our understanding below 1 Financial pressures e The 2014 2015 budget proposals are balanced The on going reductions in government funding results in budget deficits in the medium term e We will consider the Council s response to the financial pressures as part of our work to support the value for money conclusion financial resilience e As part of our accounts audit we review the assertion that the Council operates as a going concern 2014 Grant Thornton UK LLP 2 Commissioning Council The Council is developing a mix of delivery models to deliver its services Moving to be a commissioning council there is to be an increasing number of arms length companies to provide the benefits of a more commercial approach to services balanced with effective governance and accountability We will review the Council s arrangements for identifying and reflecting the financial implications of the alternative delivery models in its medium term financial plans as part of our work for the VFM conclusion We will review how the Council puts in place new governance structures to support these changes in service delivery through our regular meetings with senior management and those charged with governance We will r
3. is based on the following criteria specified by the Audit Commission VfM criteria Focus of the criteria The organisation has proper The organisation has robust systems and arrangements in place for securing processes to manage financial risks and financial resilience opportunities effectively and to secure a stable financial position that enables it to continue to operate for the foreseeable future The organisation has proper The organisation is prioritising its arrangements for challenging how resources within tighter budgets for it secures economy efficiency and example by achieving cost reductions and effectiveness by improving efficiency and productivity 2014 Grant Thornton UK LLP We have undertaken a risk assessment to identify areas of risk to our VfM conclusion We will undertake work in the following areas to address the risks identified Review the Council s financial resilience as reflected in the medium term financial strategy and the savings factored into the annual budgets Review the Council s arrangements for identifying and reflecting the financial implications of the development of alternative delivery models in its medium term financial plans Review the Council s progress in planning for its role under the Better Care Fund previously Integration Transformation Fund lt Review the evidence of improvements in the arrangements to protect children following the Ofsted inspection report publis
4. d Stewardship Deputy s151 Office Judith was formerly employed by Grant Thornton UK LLP and was the engagement lead for the external audit of the Council This appointment poses a threat actual or perceived to the independence of the auditor In these circumstances we have taken actions to safeguard the independence of the firm and of the auditor in accordance with the Ethical Standards and the Audit Commission s Standing Guidance A summary of these safeguards are set out below We will also disclose this threat and these safeguards in our audit findings report We have discussed these safeguards with the Council s Leader Chief Executive and Chief Operating Officer We have also discussed and agreed these safeguards with the Audit Commission Safeguards to mitigate the threat to the independence of the auditor e Judith withdrew from the audit team as soon as she advised her interest in applying for the role at the Council and alternative arrangements were put in place to discuss and finalise the Annual Audit Letter and to certify two grant claims This concluded the 2012 13 audit e For the 2013 14 audit all senior members of the team are now replaced by individuals who have not previously worked with Judith Your new audit team are set out on page 4 e Asan additional safeguard the team are from another Grant Thornton region Midlands and are headed up by the Regional Lead Partner for the Midlands Jon Roberts Your new audit team also include
5. e latest guidance 2014 Grant Thornton UK LLP 2 Legislation e Local government finance settlement Welfare reform Act 2012 We will discuss the impact of the legislative changes with the Council through our regular meetings with senior management and those charged with governance providing a view where appropriate Developments and other requirements Corporate governance Annual Governance Statement AGS Explanatory foreword We will review the arrangements the Council has in place for the production of the AGS We will review the AGS and the explanatory foreword to consider whether they are consistent with our knowledge We will apply the findings of our national research in this area 4 Pensions e The impact of changes to the accounting requirements for the Local Government pension Scheme LGPS We will review how the Council deals with the accounting and financing impact of the 2013 14 changes through discussions with management and our substantive testing 5 Financial Pressures e Managing service provision with less resource e Incorporating efficiency savings into the 2013 14 revenue budget and medium term financial plans e We will review the Council s performance against the 2013 14 budget e We will review the Council s Financial Resilience as part of our VFM conclusion 6 Other requirements The Council is required to submit a Whole of Government accounts pack on
6. ecause the auditor is required to undertake more or less work compared to 2011 12 on which the fee is based Auditors must seek the agreement of the Audit Commission to any variation to the grant certification fee 2014 Grant Thornton UK LLP Fees for other services None Nil Independence and ethics Ethical standards and International Standards on Auditing ISA 260 require us to give you full and fair disclosure of matters relating to our independence In this context we have previously reported to the Audit and Governance Committee the safeguards to mitigate the threat to the independence of the auditor arising from the appointment of the former Engagement Lead to the post of Head of Corporate resources and Stewardship Deputy Section 151 officer These arrangements have been agreed with the Audit Commission and are repeated at page 14 of this audit plan We have complied with the Auditing Practices Board s Ethical Standards and therefore we confirm that we are independent and are able to express an objective opinion on the financial statements Pull details of all fees charged for audit and non audit services will be included in our Audit Findings report at the conclusion of the audit We confirm that we have implemented policies and procedures to meet the requirement of the Auditing Practices Board s Ethical Standards Independence In January 2014 Judith Tench joined Cheshire East Council as Head of Corporate Resources an
7. eference this review to our national research contained within our local government governance survey Working in Tandem and our report on alternative delivery models in local government Responding to the Challenge Challenges opportunities 3 Capital investment e The Council had a three year capital programme of 223m for 2013 2016 funded from external grants and contributions capital receipts prudential borrowing and revenue contributions Moving forward the 2014 17 capital plan is expected to be flexed to maximise funding opportunities We will review the Council s capital programme and funding arrangements including plans to secure capital receipts through the reconfiguration of its asset base through our discussions with management and substantive testing 4 Management restructure e During 2013 the Council has restructured its Corporate Leadership Team The senior management team is now in place to take the Council forward in developing governance arrangements appropriate to its strategic direction e We will meet with senior management and members on a regular basis to discuss their response to the opportunities and challenges facing the Council 5 Better Care Fund The Better Care Fund formerly the integrated transformation fund is a single pooled budget for health and social care services to work more closely together in local areas Authorities need to plan with their par
8. g estimates and judgements Work planned e Review of accounting estimates judgments and decisions made by management e Testing of journal entries e Review of significant and unusual transactions Other risks identified The auditor should evaluate the design and determine the implementation of the entity s controls including relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 In this section we outline the other risks of material misstatement which we have identified as a result of our planning Other reasonably possible risks Operating expenses Employee remuneration 2014 Grant Thornton UK LLP Description Creditors understated or not recorded in the correct period Employee remuneration accrual understated Work programme We will document the processes and controls in place around the accounting for operating expenses and carry out walkthrough tests to confirm the operation of controls We will carry out testing including e the completeness of the subsidiary system interfaces and control account reconciliations e reviewing the monthly trend analysis of payments e cut off testing of purchase orders and goods received notes both before and after year end Testing will also cover a sa
9. hed in April Review the Council s progress in implementing actions to address the matters raised in the 2012 13 VfM conclusion specifically arrangements to procure goods and services understanding of costs and performance arrangements to develop business proposals and manage significant projects The results of our VfM audit work and the key messages arising will be reported in our Audit Findings report and in the Annual Audit Letter 10 Interim audit work We will report the results of our interim work to the June meeting of the Audit and Governance The work to be carried out is detailed in the table below Should the outcome of our interim work impact upon our overall audit plan and strategy we will report any changes back to those charged with governance Internal audit Walkthrough testing Review of information technology controls Journal entry controls Early substantive testing 2014 Grant Thornton UK LLP Work to be performed We review internal audit s overall arrangements in accordance with auditing standards We also review internal audit s work on the Council s key financial systems to date We complete walkthrough tests of controls operating in areas where we consider that there is a risk of material misstatement to the financial statements This covers some procedures operated by the shared service provider under the partnership arrangement with Cheshire West and Chester Our wor
10. k determines whether internal controls have been implemented in accordance with our documented understanding Our information systems specialist performs a high level review of the general IT control environment as part of the overall review of the internal controls system We also perform a follow up of the issues that were raised last year We review the Council s journal entry policies and procedures as part of determining our journal entry testing strategy We will complete testing on initial samples of employee remuneration operating expenses and income Outcome of the work to be performed We will conclude whether the internal audit service continues to provide an independent and satisfactory service to the Council and that internal audit work contributes to an effective internal control environment at the Council Our review of internal audit work will identify whether there are any weaknesses which impact on our audit approach We will conclude whether our work has identified any weaknesses which impact on our audit approach We will conclude whether our work identifies any material weaknesses which are likely to adversely impact on the Council s financial statements The work will identify whether there any material weaknesses which are likely to adversely impact on the Council s control environment or financial statements The work will inform our approach to the audit of the Council s accounts and contribute to the ass
11. mple of operating expenses covering the period 1 4 13 to 31 3 14 to ensure they have been accurately accounted for and in the correct period We will document the processes and controls in place around the accounting for employee remuneration and carry out walkthrough tests to confirm the operation of controls We will carry out testing including e the completeness of the payroll reconciliation to ensure that information from the payroll system can be agreed to the ledger and financial statements e asample of payments made in April amp May to ensure payroll expenditure is recorded in the correct year e reviewing the monthly trend analysis of total payroll Testing will also cover a sample of employee remuneration payments covering the period 1 4 13 to 31 3 14 to ensure they have been accurately accounted for and in the correct period Other risks identified continued The auditor should evaluate the design and determine the implementation of the entity s controls including relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 In this section we outline the other risks of material misstatement which we have identified as a result of our planning Other reasonably possible risks Description Welfare Expe
12. nditure Welfare benefit expenditure improperly computed Property Plant amp PPE activity not valid Equipment Property Plant amp Revaluation measurement not correct Equipment 2014 Grant Thornton UK LLP 9 Work programme We will document the processes and controls in place around the accounting for welfare benefits and carry out walkthrough tests to confirm the operation of controls We will carry out testing in accordance with the methodology required to certify the housing benefit subsidy claim We will document the processes and controls in place around the accounting for PPE and carry out walkthrough tests to confirm the operation of controls We will carry out substantive testing on a sample of PPE transactions covering the period 1 4 13 to 31 3 14 We will document the processes and controls in place around the accounting for revaluations of PPE and carry out walkthrough tests to confirm the operation of controls We will review the qualifications term of reference and the assumptions and methods used by the Valuer in work carried out as an expert for the Council We will review valuation reports to support the accounting entries Value for money Value for money The Code requires us to issue a conclusion on whether the Council has put in place proper arrangements for securing economy efficiency and effectiveness in its use of resources This is known as the Value for Money V M conclusion Our VfM conclusion
13. nts Y e Test of detail Anal d e Substantive Report output nalyse data ETEME using relevant i to teams review parameters Conclude and report Documents processes and controls Significant risks identified Significant risks often relate to significant non routine transactions and judgmental matters Non routine transactions are transactions that are unusual either due to size or nature and that therefore occur infrequently Judgmental matters may include the development of accounting estimates for which there is significant measurement uncertainty ISA 315 In this section we outline the significant risks of material misstatement which we have identified There are two presumed significant risks which are applicable to all audits under auditing standards International Standards on Auditing ISAs which are listed below Significant risk Description The revenue cycle includes Under ISA 240 there is a presumed risk that revenue fraudulent transactions may be misstated due to the improper recognition of revenue Management over ride of controls Under ISA 240 there is a presumed risk that the risk of management over ride of controls is present in all entities 2014 Grant Thornton UK LLP Substantive audit procedures Work planned e Review and testing of revenue recognition policies e Testing of material revenue streams We have discussed with management the rationale and evidence to support key accountin
14. s Allison Rhodes and Naomi Povey The audit engagement team will not conduct any meetings with Judith without another Council officer being present This additional safeguard will continue for the next two years e In addition we confirm that Judith has no residual financial relationships with the firm 2014 Grant Thornton UK LLP Communication of audit matters with those charged with governance International Standards on Auditing ISA 260 as well as other ISAs prescribe matters which we are required to communicate with those charged with governance and which we set out in the table opposite This document The Audit Plan outlines our audit strategy and plan to deliver the audit while The Audit Findings will be issued prior to approval of the financial statements and will present key issues and other matters arising from the audit together with an explanation as to how these have been resolved We will communicate any adverse or unexpected findings affecting the audit on a timely basis either informally or via a report to the Council Respective responsibilities This plan has been prepared in the context of the Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission www audit commission gov uk We have been appointed as the Council s independent external auditors by the Audit Commission the body responsible for appointing external auditors to local public bodies in England As e
15. tners for access to the fund by submitting plans in early 2014 We will monitor the Council s progress in planning for its role under the Better Care Fund 6 Arrangements to protect children The Council has an improvement plan to address recommendations from the Ofsted inspection published in April 2013 which concluded the arrangements to protect children to be inadequate The Council also received an Improvement Notice As part of our VFM audit we will consider the evidence of improvement in this area such as the progress of the Children s Improvement Plan and its monitoring by the Improvement Board Developments relevant to your business and the audit In planning our audit we also consider the impact of key developments in the sector and take account of national audit requirements as set out in the Code of Audit Practice the code and associated guidance 1 Financial reporting e Changes to the CIPFA Code of Practice Clarification of Code requirements around PPE valuations Changes to NDR accounting and provisions for business rate appeals Transfer of assets to Academies Through discussions with management and our substantive testing we will ensure that the Council complies with the requirements of the CIPFA Code of Practice the Council accounts appropriately for NDR and provides for the impact of business rate appeals schools are accounted for correctly and in line with th
16. uards applied to threats to independence Material weaknesses in internal control identified during the audit ka Identification or suspicion of fraud involving management and or others which results in material misstatement of the financial statements Non compliance with laws and regulations Expected modifications to the auditor s report or emphasis of matter Uncorrected misstatements Significant matters arising in connection with related parties SI SISI SIS Significant matters in relation to going concern 15 GrantThornton 2014 Grant Thornton UK LLP All rights reserved Grant Thornton means Grant Thornton UK LLP a limited liability partnership Grant Thornton is a member firm of Grant Thornton International Ltd Grant Thornton International References to Grant Thornton are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms as the context requires Grant Thornton International and the member firms are not a worldwide partnership Services are delivered independently by member firms which are not responsible for the services or activities of one another Grant Thornton International does not provide services to clients grant thornton co uk
17. urance for material items 11 Key dates The audit cycle March 2013 Interim audit visit July August 2014 September 2014 September 2014 Final accounts Completion Visit reporting pebret Key phases of our audit 2014 Grant Thornton UK LLP Date February 2014 10 March 2014 27 March 2014 21 July August 2014 September 2014 TBA 18 September 2014 week commencing 22 September 2014 Activity Planning Interim site visit Presentation of initial audit plan to Audit and Governance Year end fieldwork Audit findings clearance meeting with Head of Corporate Resources amp Stewardship Report audit findings to those charged with governance Audit and Governance Committee Sign financial statements opinion 12 Fees and independence Fees Council audit 205 050 Grant certification 26 900 Total fees excluding VAT 231 950 Our fee assumptions include e Supporting schedules to all figures in the accounts are supplied by the agreed dates and in accordance with the agreed upon information request list The scope of the audit and the Council and its activities have not changed significantly e The Council will make available management and accounting staff to help us locate information and to provide explanations It is important to note that the actual certification fees for 2013 14 may be higher or lower than the indicative fee stated above b
18. which we provide an audit opinion The Council completes grant claims and returns on which audit certification is required We will carry out work on the WGA pack in accordance with requirements We will certify grant claims and returns in accordance with Audit Commission requirements Our audit approach 1 a Understanding and the entity Understanding gt the business Understanding _ management s focus gt Evaluating the gt year s results Voyager 2014 Grant Thornton UK LLP _ the environment Creates and tailors audit programs Global audit technology Inherent Develop audit plan to risks obtain reasonable assurance that the Financial Statements a as a whole are free Significant from material risks misstatement and 3 gt prepared in all material respects Other with the CIPFA Code risks of Practice framework using our global methodology and audit software Material balances Note a An item would be considered material to the financial statements if through its omission or non disclosure the financial statements would no longer show a true and fair view Stores audit evidence Ensures compliance with International Standards on Auditing ISAs Devise audit strategy planned control reliance Extract your data y e Test controls e Substantive analytical review e Tests of detail General audit procedures Financial stateme
19. xternal auditors we have a broad remit covering finance and governance matters Our annual work programme is set in accordance with the Code of Audit Practice the Code issued by the Audit Commission and includes nationally prescribed and locally determined work Our work considers the Council s key risks when reaching our conclusions under the Code It is the responsibility of the Council to ensure that proper arrangements are in place for the conduct of its business and that public money is safeguarded and properly accounted for We have considered how the Council is fulfilling these responsibilities 2014 Grant Thornton UK LLP Audit Audit Our communication plan plan findings Respective responsibilities of auditor and management those charged v with governance Overview of the planned scope and timing of the audit Form timing v and expected general content of communications Views about the qualitative aspects of the entity s accounting and v financial reporting practices significant matters and issue arising during the audit and written representations that have been sought Confirmation of independence and objectivity A statement that we have complied with relevant ethical requirements regarding independence relationships and other matters which might be thought to bear on independence Details of non audit work performed by Grant Thornton UK LLP and network firms together with fees charged Details of safeg
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