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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 06/04/2004
Audit Charter and an Audit Strategy



Summary & Purpose
The 2003 Code of Practice for Internal Audit in Local Government in the United Kingdom (the Code), issued by the Chartered Institute of Public Finance and Accountancy (CIPFA), requires that the Head of Internal Audit (at Waverley, the Audit Manager) should develop and maintain a terms of reference and a strategy for delivering the Internal Audit service. This report therefore sets out a proposed terms of reference (in the shape of a charter) and strategy that will be developed to achieve the aims of that Charter.

Quality of Life Implications
Natural Resource Use
Pollution Prevention and Control
Biodiversity and Nature
Local Environment
Social Inclusion
Safe Communities
Local Economy
Natural
Resource Use
Pollution
Prevention and Control
Biodiversity
and Nature
Local
Environment
Social
Inclusion
Safe, Healthy
and Active
Communities
Local
Economy
N/A
N/A
N/A
N/A
Positive
N/A
Positive


APPENDIX G
WAVERLEY BOROUGH COUNCIL

EXECUTIVE – 6TH APRIL 2004

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Title:
Audit Charter and an Audit Strategy

[Wards Affected: N/A]
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Summary and purpose:

The 2003 Code of Practice for Internal Audit in Local Government in the United Kingdom (the Code), issued by the Chartered Institute of Public Finance and Accountancy (CIPFA), requires that the Head of Internal Audit (at Waverley, the Audit Manager) should develop and maintain a terms of reference and a strategy for delivering the Internal Audit service. This report therefore sets out a proposed terms of reference (in the shape of a charter) and strategy that will be developed to achieve the aims of that Charter.

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Quality of life implications – social, environmental & economic (sustainable development):

The matters that fall within the remit of an internal audit service have direct consequences and implications for openness and accountability, which is one of the Council’s objectives. This has a positive effect on social inclusion, as all would have access to the information involved, and would have a positive effect on the local economy through the promotion of sound business arrangements.

E-Government implications:

Insofar as agendas and minutes are placed on the Council’s website, the report would have implications for e-government.

Resource and legal implications:

Whilst the work of the Audit Section will directly affect the Council’s resources, there are no additional costs arising from this report.

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Requirements of the Code and the Accounts and Audit Regulations 2003

1. In addition to a new Code being issued in 2003, a new set of Accounts and Audit Regulations was issued. Regulation 6 requires that a “relevant body shall maintain an adequate and effective system of internal audit of its accounting records and of its system of internal control in accordance with proper internal audit practices”. Those proper practices are set out in the Code.

2. There are, in addition, other statutory requirements regarding the provision of an internal audit. The chief financial officer (the Director of Finance) has a personal duty to ensure there is proper administration of the financial affairs of the authority, as set out in S.151 of the Local Government Act 1972. However, the Accounts and Audit Regulations clearly place responsibility for the provision of internal audit upon the Council rather than one of its officers.

3. Regulation 6 goes on to say “any officer or member of that body shall, if the body requires, (a) make available such documents of the body which relate to its accounting and other records as appear to that body to be necessary for the purpose of the audit; and (b) supply the body with such information and explanation as that body considers necessary for that purpose”.

4. The Code sets out the range of issues that should be included in the terms of reference. At present, Waverley has no formal terms of reference for its Internal Audit service, except a section contained within Financial Regulations, which is limited to access to records and information. It is therefore clear that Waverley needs to adopt terms of reference that are commensurate with the Code.

5. Internal Audit is currently provided by a team of five staff. Currently one is on secondment to the Chief Executive’s Department. To compensate for this loss of resource, there is a short-term contract with an external provider of audit services to help fulfil the Audit Plan.

Matters that should be included within the terms of reference

6. The Code contains ten standards that should govern the work and conduct of an Internal Audit service. These are:-

Scope of Internal Audit
Independence
Audit Committees or Equivalent
Relationships with Management, Other Auditors and Other Review Bodies
Staffing, Training and Development
Audit Strategy
Management of Audit Assignments
Due Professional Care
Reporting

7. The terms of reference, or Charter as it is being referred to from here on, needs to take all these matters into consideration. The Code’s standard on the scope of Internal Audit specifically sets out the following as matters that should be defined by the Charter:-

Responsibilities and objectives of Internal Audit Reporting lines and relationships between the Head of Internal Audit (the Audit Manager) and: Organisational independence of Internal Audit, the accountability of Internal Audit and arrangements for provision of an objective assessment of the resource requirements of Internal Audit.

The control environment of the organisation, including all operations, resources, services and responsibilities in relation to other bodies.

How the Audit Manager will be enabled to form an audit opinion.

The right of access to all records, assets, personnel and premises, including those of partner organisations and its authority to obtain such information and explanations as it considers necessary to fulfil its responsibilities.

8. It is important that the Charter sets out in a clear manner the boundaries, priorities and accountabilities that are to be placed upon the Audit Manager and the Audit staff by providing clear terms of reference and thus providing everyone in the Council with a reference that defines Internal Audit’s role in the provision of assurance. There is a duty placed upon the Audit Manager to regularly review the Charter and make recommendations for its amendment.

9. It should be noted that, in addition to access to Waverley’s records and personnel etc, there is also provision within the Code requiring Internal Audit to form an opinion on key systems operated, and key services provided, by partner organisations (e.g. contractors, voluntary and community organisations etc.) or by Waverley to other organisations. This widens the scope of Internal Audit significantly and may be met with some resistance by those partner organisations.

The Audit Charter

10. The proposed Charter is attached at Annexe 1 to this report. Members are asked to consider the proposals, make comments for any amendments and then recommend the Charter to Council for formal adoption.

Audit Strategy

12. The Code calls for the Audit Manager to develop and maintain a strategy for delivering the Internal Audit service. This needs to be linked to the Charter. Based upon the proposed Charter as Annexe 1, a draft strategy has been prepared and is attached at Annexe 2. As with the Charter, due attention has been paid to the requirements of the Code, which states that the strategy should cover:-

how the Internal Audit service will be delivered;

how the assurance for the annual Statement on Internal Control (SIC) will be demonstrated (as required by the Accounts and Audit Regulations 2003);

resources and skills;

allocation of audit resources between assurance work, anti-fraud work and support and advice provision.

13. The strategy is based upon the experience of the way things work at present. However, this is very much a first step and the strategy will be reviewed and revised as necessary to reflect changing expectations and requirements.

Conclusion

14. Whilst an Audit Charter is necessary to fulfil the requirements of the Code, it must also be regarded as a useful management document as it sets out the parameters within which Internal Audit is to operate and defines its responsibilities. The section contained within the Council’s Financial Regulations is not sufficient as it does not cover the purpose, priorities, standards and accountabilities of the Internal Audit service within Waverley.

15. An Audit Strategy is also needed, which sets out the processes that are followed in the planning of the Internal Audit service. This has not been formally acknowledged before and endorsement of the Audit Strategy at Annexe 2 will have the effect of formalising arrangements. It would also serve as an acknowledgement of the envisaged process for preparing the SIC. Officers consider that a further report will be necessary concerning the SIC at a date later in 2004.

Recommendation

It is recommended that the Executive:

1. considers the Audit Charter attached at Annexe 1 and makes comments as required for amendment and then recommends the Charter for formal adoption by the Council;

2. considers the Audit Strategy, attached at Annexe 2, and makes comments as required for amendment; and

3. receives a report at a later date concerning the preparation of the SIC.

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Background Papers (DoF)

There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to this report.

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CONTACT OFFICER:

Name: Mr M Hill Telephone: 01483 523240

E-mail: mhill@waverley.gov.uk

comms/executive/2003-04/512