Item 14 - Annual External Audit Plan
North Lanarkshire Council · 22 June 2022
Back to Health and Social Care Integration Joint Board — 22 June 2022 and its agenda
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1 REPORT Item No: 14 SUBJECT: Annual External Audit Plan TO: Integration Joint Board Lead Officer for Report: Ross McGuffie, Chief Officer H&SC NL Author(s) of Report Ross McGuffie, Chief Officer H&SC NL Audit Scotland DATE: 22nd June 2022 1. PURPOSE OF REPORT 1.1 This paper is coming to the Integration Joint Board: For approval For endorsement For noting 1.2 This report: - (1) Provides details of the External Auditor’s Annual Audit Plan for 2021/22 (2) Provides details of the External Auditors Annual Fee 2. ROUTE TO THE INTEGRATION JOINT BOARD : 2.1 This paper has been: Prepared By; Audit Scotland Reviewed By; Chief Officer 3. RECOMMENDATIONS The IJB Committee is asked to agree the following recommendations: (1) That the content of the report is noted; (2) That the proposed revised timescale for annual accounts is noted as referenced in page 11, paragraphs 29-31. (3) That the audit fee of £27,960 is approved. 4. VARIATIONS TO DIRECTIONS 5. BACKGROUND/SUMMARY OF KEY ISSUES 5.1 The Public Bodies (Joint Working) (Scotland Act) 2014 established the framework for health and social care in Scotland and the formation of Integration Joint Boards (IJBs). Each IJB is required to prepare annual accounts and have them audited in accordance with Part VII of the Local Government (Scotland) Act 1973. Ye s No N/A
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2 5.2 Audit Scotland was appointed by the Accounts Commission and the Auditor General as the external auditors of the North Lanarkshire IJB. 6. CONCLUSIONS 6.1 The External Audit Plan for 2021/22 has been discussed and agreed with both the Chief Officer and the Chief Financial Officer. 6.2 The External Auditor has provided an overview of the planned scope and timing of their audit work and this is set out in the attached appendix for information. 6.3 The annual Audit Fee for 2021/22 will be £27,960. 7. IMPLICATIONS 7.1 NATIONAL OUTCOMES Sound governance and financial sustainability are integral to the achievement of the nine health and wellbeing outcomes. 7.2 ASSOCIATED MEASURE(S) None. 7.3 FINANCIAL This paper has been reviewed by Finance: Yes No N/A The cost of the proposed external audit fee will be met from within existing resources as previously agreed. 7.4 PEOPLE None. 7.5 INEQUALITIES EQIA Completed: Yes No N/A 7.6 CARBON MANAGEMENT IMPLICATIONS Yes No N/A 8. BACKGROUND PAPERS None.
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3 9. APPENDICES North Lanarkshire Integration Joint Board – Annual Audit Plan 2021/22 ............................................................................. CHIEF ACCOUNTABLE OFFICER (or Depute) Members seeking further information about any aspect of this report, please contact Ross McGuffie on telephone number 01698 752 591.
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Prepared for North Lanarkshire Integration Joint Board 8 April 2022 North Lanarkshire Integration Joint Board Annual Audit Plan 2021/22 Appendix
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North Lanarkshire Integration Joint Board Annual Audit Plan 2021/22 | 2 Contents Introduction 3 Annual accounts audit planning 5 Audit dimensions and Best Value 8 Reporting arrangements, timetable, and audit fee 10 Other matters 13
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Introduction | 3 Introduction Summary of planned audit work 1. This document summarises the work planned for our 2021/22 external audit of North Lanarkshire Integration Joint Board (the IJB). The main elements of our work include: • an audit of the 2021/22 annual accounts to support our opinions on the financial statements • work to support our opinions on the other statutory information published within the annual accounts including the Management Commentary, the Governance Statement, and the Remuneration Report • consideration of the arrangements in relation to the four audit dimensions that frame the wider scope of public sector audit: financial management, financial sustainability, governance and transparency and value for money • consideration of the Best Value arrangements • review the IJB’s arrangements for preparing and publishing its Annual Performance Report Impact of Covid-19 2. The coronavirus (Covid-19) pandemic has had a significant impact on public services and public finances, and the effects will be felt well into the future. 3. The Auditor General for Scotland, the Accounts Commission and Audit Scotland continue to assess the risks to public services and finances from Covid- 19 across the full range of our audit work, including annual audits and the programme of performance audits. The well-being of audit teams and the delivery of high-quality audits remain paramount. Changes in our approach may be necessary during 2022 and where this impacts on annual audits, revisions to this Annual Audit Plan may be required. Adding value 4. We aim to add value to the IJB through our external audit work by being constructive and forward looking, by identifying areas for improvement and by recommending and encouraging good practice. In so doing, we will help the IJB promote improved standards of governance, better management and decision making and more effective use of resources. We also attend meetings of Integration Joint Board and the Performance, Finance and Audit Committee and actively participate in discussions where appropriate.
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Introduction | 4 Respective responsibilities 5. The Code of Audit Practice (2016) sets out in detail the respective responsibilities of the auditor and the IJB. Key responsibilities are summarised below. Auditor responsibilities 6. Our responsibilities as independent auditors are established by the Local Government (Scotland) Act 1973 and the Code of Audit Practice (including supplementary guidance) and guided by the Financial Reporting Council’s Ethical Standard. 7. Auditors in the public sector give an independent opinion on the financial statements and other information within the annual accounts. We also review and report on the arrangements within the Joint Board to manage its performance and use of resources. In doing this, we aim to support improvement and accountability. The Integration Joint Board and Chief Officer responsibilities 8. The IJB is responsible for maintaining accounting records and preparing annual accounts that give a true and fair view. 9. Also, the IJB has the primary responsibility for ensuring the proper financial stewardship of public funds, compliance with relevant legislation and establishing effective arrangements for governance and propriety that enable them to deliver their objectives. 10. The audit of the annual accounts does not relieve management or the Joint Board of their responsibilities. Managing the transition to 2022/23 audits 11. Audit appointments are usually for five years but were extended to six years due to Covid-19. 2021/22 is the final year of the current appointment and we will work closely with our successors to ensure a well-managed transition.
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Annual accounts audit planning | 5 Annual accounts audit planning Materiality 12. Materiality is an expression of the relative significance of a matter in the context of the annual accounts. We are required to plan our audit to determine with reasonable confidence whether the annual accounts are free from material misstatement. The assessment of what is material is a matter of professional judgement over both the amount and the nature of the misstatement. Materiality values for the 2021/22 audit 13. The materiality values for the IJB are set out in exhibit 1. Exhibit 1 2021/22 materiality values for North Lanarkshire Integration Joint Board Materiality Amount Planning materiality – This is the figure we calculate to assess the overall impact of audit adjustments on the financial statements. It has been set at 1% of gross expenditure from the 2020/21 audited financial statements. £6.5 million Performance materiality – This acts as a trigger point. If the aggregate of errors identified during the financial statements audit exceeds performance materiality, this would indicate that further audit procedures should be considered. Using our professional judgement, we have assessed performance materiality at 75% of planning materiality. £4.8 million Reporting threshold – We are required to report to those charged with governance on all unadjusted misstatements more than the ‘reporting threshold' amount. £0.2 million Source: Audit Scotland Significant risk of material misstatement to the annual accounts 14. Our risk assessment draws on our cumulative knowledge of the IJB, its major transaction streams, key systems of internal control and risk management processes. It is also informed by our discussions with management, meetings with internal audit, attendance at committees and a review of other relevant information. 15. Based on our risk assessment process, we identified the following significant risk of material misstatement to the annual accounts. This risk has the greatest impact on our planned audit procedures. Exhibit 2 summarises the nature of the
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Annual accounts audit planning | 6 risk, the sources of assurance from management arrangements and the further audit procedures we plan to perform to gain assurance over the risk. Exhibit 2 2021/22 significant risk of material misstatement to the annual accounts Significant risk of material misstatement Sources of management assurance Planned audit response 1. Risk of management override of controls International Auditing Standards require that audits are planned to consider the risk of 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. Owing to the nature of this risk, assurances from management are not applicable in this instance • Agreement of balances and transactions to North Lanarkshire Council and NHS Lanarkshire financial reports / ledger / correspondence. • Assurances will be obtained from the auditors of NHS Lanarkshire and North Lanarkshire Council over the completeness, accuracy and allocation of income and expenditure. • Review of significant adjustments at year- end. • Review of financial monitoring reports during the year. Source: Audit Scotland Consideration of the risks of fraud in the recognition of income and expenditure 16. As set out in International Standard on Auditing (UK) 240: The auditor’s responsibilities relating to fraud in an audit of financial statement, there is a presumed risk of fraud over the recognition of income. There is a risk that income may be misstated resulting in a material misstatement in the annual accounts. The Joint Board is wholly funded by NHS Lanarkshire and North Lanarkshire Council. We assess that the risk of material misstatement arising from fraud over income is limited. This limitation is to such an extent that we have excluded the risk of fraud over income from our significant audit risks.
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Annual accounts audit planning | 7 17. In line with Practice Note 10: Audit of financial statements and regularity of public sector bodies in the United Kingdom, as most public-sector bodies are net expenditure bodies, the risk of fraud is more likely to occur in expenditure. We have rebutted the risk of material misstatement caused by fraud in expenditure in 2021/22 as we do not consider this to be a significant risk for the Joint Board. This is on the basis that all transactions are processed by the partner bodies rather than the Joint Board directly and that all expenditure is undertaken by the partners who are public sector bodies. 18. We have not, therefore, incorporated specific work into our audit plan in these areas over and above our standard audit procedures. Our audit testing will maintain an oversight of any unusual transactions or accounting entries. Audit risk assessment process 19. Audit risk assessment is an iterative and dynamic process. Our assessment of risks set out in this plan may change as more information and evidence becomes available during the progress of the audit. Where such changes occur, we will advise management and where relevant, report them to those charged with governance.
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Audit dimensions and Best Value | 8 Audit dimensions and Best Value Introduction 20. The Code of Audit Practice sets out the four dimensions that frame the wider scope of public sector audit. The Code of Audit Practice requires auditors to consider the adequacy of the arrangements in place for the audit dimensions in audited bodies. Audit dimensions 21. The four dimensions that frame our audit work are shown in exhibit 3. Exhibit 3 Audit dimensions Source: Code of Audit Practice 22. In summary, the four dimensions cover the following: • Financial management – financial management is concerned with financial capacity, sound budgetary processes and whether the control environment and internal controls are operating effectively. • Financial sustainability – as auditors, we consider the appropriateness of the use of the going concern basis of accounting as part of the annual audit. We will also comment on financial sustainability in the longer term. We define this as medium term (two to five years) and longer term (longer than five years).
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Audit dimensions and Best Value | 9 • Governance and transparency – governance and transparency is concerned with the effectiveness of scrutiny and governance arrangements, leadership, and decision-making and transparent reporting of financial and performance information. • Value for money – value for money refers to using resources effectively and continually improving services. Best value 23. Integration Joint Boards have a statutory duty to make arrangements to secure best value. We will consider and report, where necessary, on these arrangements. Audit dimension risks 24. No new audit dimension risks were identified for the IJB in 2021/22. Progress on the audit dimension risks identified in the prior year will be followed-up with management during the course of the 2021/22 audit.
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Reporting arrangements, timetable, and audit fee | 10 Reporting arrangements, timetable, and audit fee Reporting arrangements 25. Audit reporting is the visible output for the annual audit. All Annual Audit Plans and the outputs, as detailed in exhibit 5, and any other outputs on matters of public interest will be published on our website: www.audit-scotland.gov.uk. 26. Matters arising from our audit will be reported on a timely basis and will include agreed action plans. Draft management reports will be issued to the relevant officers to confirm factual accuracy. 27. We will provide an independent auditor’s report to the Joint Board and the Accounts Commission setting out our opinions on the annual accounts. We will provide the IJB and the Accounts Commission with an annual report on the audit containing observations and recommendations on significant matters which have arisen during the audit. 28. Exhibit 5 outlines the target dates for our audit outputs, and we aim to issue the independent auditor’s report by the statutory deadline of 31 October 2022. We acknowledge this will be challenging due to the ongoing pressures and uncertainties caused by Covid-19. Integration Joint Board and Performance, Finance and Audit Committee meeting dates for later in the 2022 year have yet to be confirmed. Exhibit 5 2021/22 audit outputs Audit Output Target date Committee Date Annual Audit Plan 31 March 2022 22 June 2022 Independent Auditor's Report 31 October 2022 TBC Annual Audit Report 31 October 2022 TBC Source: Audit Scotland
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Reporting arrangements, timetable, and audit fee | 11 Timetable 29. To support an efficient audit, it is critical that the timetable for producing the annual accounts for audit is achieved. We have included a proposed timetable for the audit at exhibit 6 that has been discussed with management. 30. Covid-19 has had a considerable impact on the conduct and timeliness of the audit. We recognise that it is in the best interests of public accountability to get the reporting of audited accounts back to pre-pandemic timelines. To this end, 2021/22 is a transition year with the reporting deadline brought forward by three and a half months relative to the prior year sign-off. We are identifying ways to work more efficiently to expedite the 2021/22 audits whilst at the same time maintaining high standards of quality. 31. We will continue to work in close partnership with management with clarity over timescales and the requirement for high quality unaudited accounts and supporting working papers. Progress will be discussed with management over the course of the audit. Exhibit 6 Proposed annual accounts timetable Key stage Provisional Date Consideration of the unaudited annual report and accounts by those charged with governance 22 June 2022 Latest submission date for the receipt of the unaudited annual report and accounts with complete working papers package. 22 June 2022 Latest date for final clearance meeting with the Chief Financial Officer 30 November 2022 Latest date Letter of Representation and proposed Independent Auditor’s Report will be issued 30 November 2022 Latest date for agreement of audited and unsigned annual accounts 30 November 2022 Latest date Annual Audit Report will be issued to those charged with governance 30 November 2022 Latest date Independent Auditor’s Report will be signed 30 November 2022 Source: Audit Scotland
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Reporting arrangements, timetable, and audit fee | 12 Audit fee 32. The agreed audit fee for the 2021/22 audit of the Joint Board is £27,960 (2020/21: £27,330). In determining the audit fee, we have taken account of the risk exposure of the Joint Board, the planned management assurances in place and the level of reliance we plan to take from the work of internal audit. 33. Where our audit cannot proceed as planned through, for example, late receipt of unaudited annual accounts, the absence of adequate supporting working papers or being unable to take planned reliance from the work of internal audit, a supplementary fee may be levied. An additional fee may also be required in relation to any work or other significant exercises out with our planned audit activity.
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Other matters | 13 Other matters Internal audit 34. International standards on Auditing (UK) 610: Considering the work of internal audit requires us to: • consider the activities of internal audit and their effect on external audit procedures. • obtain an understanding of internal audit activities to inform our planning and develop an effective audit approach that avoids duplication of effort. • perform a preliminary assessment of the internal audit function when there is scope for relying on internal audit work which is relevant to our financial statements' responsibilities; and • evaluate and test the work of internal audit, where use is made of that work for our financial statements responsibilities to confirm its adequacy for our purposes. 35. The IJBs internal audit function is provided jointly by the internal audit teams of NHS Lanarkshire and North Lanarkshire Council. 36. From our initial review of the internal audit plan, we do not plan to place formal reliance on internal audit’s work for our financial statements' responsibilities. We may consider aspects of internal audit’s work in respect of our wider audit dimension responsibilities Independence and objectivity 37. Auditors appointed by the Auditor General for Scotland or Accounts Commission must comply with the Code of Audit Practice and relevant supporting guidance. When auditing the annual accounts, 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 Director of Audit Services, who serves as Audit Scotland’s Ethics Partner. 38. The engagement lead (i.e., appointed auditor) for the IJB is Brian Howarth, Audit Director. Auditing and ethical standards require the appointed auditor 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 the IJB.
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Other matters | 14 Quality control 39. International Standard on Quality Control (UK) 1 (ISQC1) requires a system of quality control to be established, as part of financial audit procedures, to provide reasonable assurance that professional standards and regulatory and legal requirements are being complied with and that the independent auditor’s report or opinion is appropriate in the circumstances. 40. The foundation of our quality framework is our Audit Guide, which incorporates the application of professional auditing, quality and ethical standards and the Code of Audit Practice (and supporting guidance) issued by Audit Scotland and approved by the Auditor General for Scotland. To ensure that we achieve the required quality standards, Audit Scotland conducts peer reviews and internal quality reviews. Additionally, the Institute of Chartered Accountants of Scotland (ICAS) have been commissioned to carry out external quality reviews. 41. As part of our commitment to quality and continuous improvement, Audit Scotland will periodically seek your views on the quality of our service provision. We welcome feedback at any time, and this may be directed to the engagement lead.
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Other matters | 15 North Lanarkshire Integration Joint Board Annual Audit Plan 2021/22 Audit Scotland’s published material is available for download on the website in a number of formats. For information on our accessibility principles, please visit: www.audit-scotland.gov.uk/accessibility For the latest news follow us on social media or subscribe to our email alerts. Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN Phone: 0131 625 1500 Email: info@audit-scotland.gov.uk www.audit-scotland.gov.uk AS.4.0