Audit Scotland - Audit Strategy Letter 2022-23
North Lanarkshire Council · 16 February 2023
Back to Audit and Scrutiny Panel — 16 February 2023 and its agenda
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North Lanarkshire Council Report Audit and Scrutiny Panel Does this report require to be approved? ☐ Yes ☒ No ☐approval ☒noting Ref KA/ASP/Feb23 Date 16/02/23 Audit Scotland – Audit strategy letter 2022-23 From: Ken Adamson, Chief Officer - Audit and Risk E-mail: adamsonk@northlan.gov.uk Telephone 07939 280602 Executive Summary The purpose of this report is to provide members with information from Audit Scotland, the Council’s appointed external auditors, on the status of their 2022-23 audit planning. As outlined by Audit Scotland (at Appendix 1), Covid-19 has continued to impact on the completion of the 2021/22 audits with ongoing extensions to statutory deadlines. This, along with the changeover in the appointed auditor, has impacted on the timing of their planning work on the 2022/23 audits. Appendix 1 provides an overview of key aspects arising from the audit planning process including a timetable for key audit outputs. This includes finalisation of the 2022-23 Audit Plan which is expected to be completed by 31 March 2023. This document will be circulated to Panel members on receipt and tabled formally at the next subsequent Panel meeting. The external auditors will speak to the Panel about their plans at the meeting and highlight to members any issues arising from their planning process so far that they wish to bring to the Panel’s attention. Recommendations The Panel is requested to invite Audit Scotland to comment on the development and status of their planned audit approach to the 2022-23 audit of the Council. The Plan for North Lanarkshire Priority All priorities Ambition statement All ambition statements
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1. Background 1.1 The Accounts Commission appointed Audit Scotland as the Council’s external auditor for the five-year period from 2022-23. 1.2 Audit Scotland’s Code of Audit Practice and International Standards on Auditing stipulate that areas to be examined and expected outputs to be produced by the external auditors require to be outlined each year in their annual planning document. 2. Report Audit reviews completed in the period 2.1 As outlined by Audit Scotland (at Appendix 1), Covid-19 has continued to impact on the completion of the 2021/22 audits with ongoing extensions to statutory deadlines. This, along with the changeover in the appointed auditor, has impacted on the timing of their planning work on the 2022/23 audits. 2.2 Appendix 1 provides an overview of key aspects arising from the audit planning process to date including a timetable for key audit outputs. This includes finalisation of the 2022-23 Audit Plan which is now expected to be completed by 31 March 2023. 2.3 Panel members should note that good professional practice requires the external auditor to communicate and discuss planned external audit activity with the senior management of a body and with those elected members charged with governance matters, but it is for the external auditor alone to determine the work considered necessary by him/her to fulfil their responsibilities. 3. Measures of success 3.1 The external auditors report annually to the Council and the Controller of Audit on the results of their work. 4. Supporting documentation Appendix 1 Audit Scotland Audit Strategy Letter Ken Adamson, Chief Officer - Audit and Risk
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5. Impacts ( http://connect/report-template-guidance ) 5.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact because of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☐ No ☒ 5.2 Financial impact Does the report contain any financial impacts? Yes ☐ No ☒ 5.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ 5.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ 5.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ 5.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ 5.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ 5.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ 5.9 Risk impact Is there a risk impact? Yes ☐ No ☒ 5.10 Armed Forces Covenant Duty Does the report require to take due regard of the Armed Forces Covenant Duty (i.e. does it relate to healthcare, housing, or education services for in-Service or ex- Service personnel, or their families, or widow(er)s)? Yes ☐ No ☒
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102 West Port Edinburgh EH3 9DN 8 Nelson Mandela Place Glasgow G2 1BT The Green House Beechwood Business Park North Inverness IV2 3BL T: 0131 625 1500 E: info@audit-scotland.gov.uk www.audit-scotland.gov.uk North Lanarkshire Council 03 February 2023 Update on the 2022/23 audit of North Lanarkshire Council 1. The purpose of this letter is to provide members with an update on the 2022/23 audit of North Lanarkshire Council (the Council). Covid-19 has continued to impact on the completion of the 2021/22 audits with ongoing extensions to statutory deadlines. This, along with the changeover in the appointed auditor, has impacted on the timing of our planning work on our 2022/23 audits. 2. Our planning work on the 2022/23 audit of the Council is at an early stage. Therefore, we are not able to present our Annual Audit Plan to the Audit and Scrutiny Panel (ASP) at the meeting on 16 February 2023. We have included this Audit Strategy Letter to update members on progress and highlight key audit matters. Following the conclusion of our audit planning procedures, we will issue a copy of the Annual Audit Plan to officers and members of the ASP by 31 March 2023. Risks 3. Our preliminary planning work has identified the following significant risks that requires specific audit considerations. • Risk of material misstatement due to management override of controls: International Standard on Auditing 240 (ISA 240) require that audits are planned to consider the risk of material misstatement in the financial statements caused by fraud, which is presumed to be a significant risk in any audit. This includes the risk of fraud due to the management override of controls to change the position disclosed in the financial statements. • Estimation in the valuation of land and buildings: The Council held land and buildings with a net book value of £2,860 million as at 31 March 2022. There is a significant degree of complexity and subjectivity in the valuation of land and buildings. Valuations are based on specialist and management assumptions and changes in these can result in material changes to valuations. Through our initial risk assessment we consider this to be an area of increased risk. Through our audit work we will pinpoint our risk to areas most susceptible to material misstatement and include this in our external audit plan. 4. ISA 240 presumes a risk of fraud in revenue recognition which is extended to expenditure by Practice Note 10. There is a risk that income or expenditure may be fraudulently misstated resulting in a material misstatement in the financial statements. We do not consider these to be significant risks for the Council as there are limited opportunities to manipulate the way income or expenditure are recognised in the financial statements and have therefore rebutted these risks. 5. Our Annual Audit Plan will include any further risks identified from our planning work and outline our response to all identified risks.
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Audit Fee 6. The proposed baseline audit fee for the 2022/23 audit is £607,796 (2021/22: £540,526). Our fees have increased in 2022/23 and this is a reflection of the current audit market and the rising costs in delivering high quality audit work. There are increased regulatory expectations and risks placed on audit and its quality, as well as a widening in the scope of work audit must cover. 7. In setting the fee for 2022/23 we have assumed that the Council has effective governance arrangements and will prepare comprehensive and accurate accounts for audit in line with the agreed timetable for the audit. The audit fee assumes there will be no major change in respect of the scope of the audit during the year and where our audit cannot proceed as planned, a supplementary fee may be levied. Exhibit 1 Audit fees (including VAT) Fee component Fees (£) External Auditor Remuneration 356,320 Contribution to Audit Scotland costs 13,510 Contribution to Performance and Best Value 118,120 Sectoral Cap Adjustment 115,660 2022/23 Audit fee 603,610 Audit of Charitable Trusts 4,186 Total 2022/23 fee 607,796 Source: Audit Scotland Audit Timetable 8. As outlined in paragraph 1, Covid-19 has continued to impact on the timings of our 2022/23 audit planning. We are working towards issuing the independent auditor’s report and Annual Audit Report by the statutory deadline of 30 September 2023. However, we acknowledge this may not be achievable due to ongoing pressures. We will maintain a pragmatic and flexible approach to the audit and will continue to have discussions with management and the Convener of the ASP around the progress of our work and any changes that may be required to the target dates outlined in Exhibit 1. Exhibit 1 Audit outputs Audit Output Target date Audit and Scrutiny Panel date Annual Audit Plan 31 March 2023 We will distribute our final audit plan to Audit
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and Scrutiny Panel by 31 March 2023 Independent Auditor's Report 30 September 2023 TBC Annual Audit Report 30 September 2023 TBC Source: Audit Scotland Best Value 9. Under the 2021 Code of Audit Practice, the audit of Best Value in councils is fully integrated within our annual audit work. 10. Best Value at North Lanarkshire Council will be assessed comprehensively over the period of the audit appointment and will include an annual evaluation of North Lanarkshire Council’s approach to demonstrating improvement in the effective use of resources and public performance reporting. We will also follow up findings reported previously in the Best Value Assurance Report in May 2019 to assess the pace and depth of improvement. 11. In addition to our annual work on Best Value we will conduct thematic reviews as directed by the Accounts Commission. In 2022/23 our focus will be on the effectiveness of council leadership in developing new local strategic priorities following the elections in May 2022. Our conclusions and judgements will be reported in a separate report to management and summarised in our Annual Audit Report. Independence and Objectivity 12. Auditors appointed by the Accounts Commission or Auditor General must comply with the Code of Audit Practice and relevant supporting guidance. When auditing the financial statements, auditors must also comply with professional standards issued by the Financial Reporting Council and those of the professional accountancy bodies. These standards impose stringent rules to ensure the independence and objectivity of auditors. Audit Scotland has robust arrangements in place to ensure compliance with these standards including an annual “fit and proper” declaration for all members of staff. The arrangements are overseen by the Executive Director of Innovation and Quality who serves as Audit Scotland’s Ethics Partner. 13. The engagement lead (i.e. appointed auditor) for the Council is John Boyd, Audit Director. Auditing and ethical standards require the engagement lead to communicate any relationships that may affect the independence and objectivity of audit staff. We are not aware of any such relationships pertaining to the audit of North Lanarkshire Council. John Boyd Audit Director Audit Scotland 4th Floor, South Suite The Athenaeum Building 8 Nelson Mandela Place Glasgow G2 1BT