Item 9 - Annual Audit Plan 2022-23
North Lanarkshire Council · 22 March 2023
Back to Health and Social Care Integration Joint Board — 22 March 2023 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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Prepared for North Lanarkshire IJB March 2023 North Lanarkshire Integration Joint Board Annual Audit Plan 2022/23
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Annual Audit Plan 2022/23 2 Contents Introduction 3 Financial statements audit planning 5 Wider Scope and Best Value 8 Reporting arrangements, timetable, and audit fee 10 Other matters 13 Appendix 1. Your audit team 15
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Introduction | 3 Introduction Summary of planned audit work 1. This document summarises the work plan for our 2022/23 external audit of North Lanarkshire Integration Joint Board (IJB). The main elements of our work include: • an audit of the 2022/23 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 Best Value arrangements • review North Lanarkshire IJB’s arrangements for preparing and publishing its Annual Performance Report. Audit Appointment 2. We are pleased to be appointed as the external auditor of North Lanarkshire IJB for the period 2022/23 to 2026/27 inclusive. You can find a brief biography of your audit team at Appendix 1. 3. In the first year of the audit appointment, we invest significant time gaining an understanding of your business and identifying and assessing the risks of material misstatement to the financial statements. While we use our initial assessment of risk to inform our planned audit approach, we keep our assessment of risks under review as the audit progresses. We will inform you of any significant changes in assessed risks and any resulting changes in our planned audit work. 4. The audit team will actively engage with you over the course of the audit to ensure our audit work continues to be focused on risk. Adding value 5. We aim to add value to North Lanarkshire IJB through our external audit work by being constructive and forward looking, by attending meetings of the Integration Joint Board and the Performance, Finance and Audit Committee and by recommending and encouraging good practice. In so doing, we will help North
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Introduction | 4 Lanarkshire IJB promote improved standards of governance, better management and decision making and more effective use of resources. Respective responsibilities 6. The Code of Audit Practice 2021 sets out in detail the respective responsibilities of the auditor and North Lanarkshire IJB. Key responsibilities are summarised below. Auditor responsibilities 7. 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. 8. 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 in place at North Lanarkshire IJB to manage its performance and use of resources. In doing this, we aim to support improvement and accountability. North Lanarkshire IJB and Chief Officer responsibilities 9. North Lanarkshire IJB is responsible for maintaining accounting records and preparing financial statements that give a true and fair view. 10. North Lanarkshire 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.
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Financial statements audit planning | 5 Financial statements audit planning Introduction 11. The annual accounts are an essential part of demonstrating the North Lanarkshire IJB’s stewardship of resources and its performance in the use of those resources. 12. We focus our work on the areas of highest risk. As part of our planning process, we prepare a risk assessment highlighting the audit risks relating to each of the main financial systems relevant to the production of the financial statements. Materiality 13. The concept of materiality is applied by auditors in planning and performing the audit, and in evaluating the effect of any uncorrected misstatements on the financial statements. We are required to plan our audit to obtain reasonable assurance that the financial statements 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 levels for the 2022/23 audit 14. The materiality values for North Lanarkshire IJB are set out in Exhibit 1. Exhibit 1 2022/23 Materiality levels for North Lanarkshire IJB Materiality Amount Planning materiality – This is the figure we calculate to assess the overall impact of audit adjustments on the financial statements. For the year ended 31 March 2023 we have set our planning materiality at 2% of gross expenditure based on the audited financial statements for 2021/22. £13.7 million Performance materiality – This acts as a trigger point. If the aggregate of errors identified during the financial statements audit exceeds performance materiality, this could indicate that further audit procedures should be considered. Using our professional judgement, based on audit planning and risk assessment we have set planning performance materiality at 75% of planning materiality. £10.2 million
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Financial statements audit planning | 6 Reporting threshold (i.e. clearly trivial) – We are required to report to those charged with governance on all unadjusted misstatements greater than the ‘reporting threshold' amount. £250 thousand Source: Audit Scotland Significant risks of material misstatement to the financial statements 15. Our risk assessment draws on our cumulative knowledge of North Lanarkshire IJB, its major transaction streams, key systems of internal control and risk management processes. It is informed by our discussions with management, meetings with internal audit, attendance at committees and a review of supporting information. 16. Based on our risk assessment process, we identified the following significant risks 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 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 2022/23 Significant risks of material misstatement to the financial statements 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, assurance s from managem ent 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 where we consider there to be greatest risk of material misstatement through
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Financial statements audit planning | 7 17. As set out in International Standard on Auditing (UK) 240: The auditor’s responsibilities relating to fraud in an audit of financial statements, there is a presumed risk of fraud over the recognition of income. There is a risk that revenue may be misstated resulting in a material misstatement in the annual accounts. The IJB 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 rebutted the risk of fraud over income from our significant audit risks. 18. In line with the Financial Reporting Council’s 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 2022/23 as we do not consider this to be a significant risk for the IJB. This is on the basis that all transactions are processed by the partner bodies rather than the IJB directly and that all expenditure is undertaken by the partners who are public sector bodies. 19. 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. Other areas of audit focus 20. As part of our assessment of audit risks, we have identified other areas where we consider there are also risks of material misstatement to the financial statements. Based on our assessment of the likelihood and magnitude of the risk, we do not consider these to represent significant risks. We will keep these areas under review as our audit progresses. 21. The areas of specific audit focus are: • IJB funding - The Scottish Government wrote to all IJBs in September 2022 indicating that, due to changes in public health policy, it intended to reclaim and re-distribute some IJB reserves which relate to Covid funding to meet current Covid priorities. It is anticipated that this will be achieved through a reduction in NHS funding allocations, ultimately reducing NHS Lanarkshire’s funding contribution to the IJB. We will review the disclosure of this within the annual report and accounts management override of controls. • Review of financial monitoring reports during the year.
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Wider Scope and Best Value | 8 Wider Scope and Best Value Introduction 22. The Code of Audit Practice sets out the four areas 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 wider scope areas in audited bodies. 23. In summary, the four wider scope areas cover the following: • Financial management means having sound budgetary processes. We will consider the arrangements to secure sound financial management including the strength of the financial management culture, accountability and arrangements to prevent and detect fraud, error and other irregularities. • 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). • Vision, leadership and governance – we conclude on the arrangements in place to deliver the vision, strategy and priorities adopted by North Lanarkshire IJB. We also consider the effectiveness of the governance arrangements to support delivery. • Use of resources to improve outcomes – we will consider how North Lanarkshire IJB demonstrates economy, efficiency and effectiveness through the use of financial and other resources. Wider scope risks 24. We have not identified any wider scope risks, however we recognise the challenges facing the IJB and the importance of ensuring it strategically plans the delivery of health and social care services within the area in a sustainable way. We will conclude on our wider scope work in our Annual Audit Report. Climate Change 25. Tackling climate change is one of the greatest global challenges. The Scottish Parliament has set a legally binding target of becoming net zero by 2045 and has interim targets including a 75% reduction in greenhouse gas emissions by 2030. The public sector in Scotland has a key role to play in ensuring these targets are met and in adapting to the impacts of climate change. 26. The Auditor General and Accounts Commission are developing a programme of work on climate change. In 2022/23, we will gather information on North
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Wider Scope and Best Value | 9 Lanarkshire IJB’s arrangements for responding to climate change covering areas such as the development of climate change strategies and the monitoring and reporting of progress against targets for reducing emissions. Cyber Security 27. There continues to be a significant risk of cyber-attacks to public bodies, and it is important that they have appropriate cyber security arrangements in place. A number of recent incidents have demonstrated the significant impact that a cyber-attack can have on both the finances and operation of an organisation. In 2022/23, we will consider North Lanarkshire IJB’s arrangements for managing and mitigating cyber security risks. Best Value 28. Auditors have a duty to be satisfied that bodies that fall within section 106 of the 1973 Act have made proper arrangements to secure Best Value. We will consider how North Lanarkshire IJB demonstrates that it is meeting its Best Value responsibilities and we will report our findings as part of our Annual Audit Report.
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Reporting arrangements, timetable, and audit fee | 10 Reporting arrangements, timetable, and audit fee Reporting arrangements 29. Audit reporting is the visible output for the annual audit. All Annual Audit Plans and the outputs, as detailed in Exhibit 4, and any other outputs on matters of public interest will be published on our website: www.audit-scotland.gov.uk. 30. 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. 31. We will provide an independent auditor’s report to North Lanarkshire IJB and the Accounts Commission setting out our opinions on the annual accounts. We will provide North Lanarkshire 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. 32. Exhibit 4 outlines the target dates for our audit outputs, and we aim to issue the independent auditor’s report by the statutory deadline of 30 September 2023. Exhibit 4 2022/23 Audit outputs Audit Output Target date IJB Committee Date Annual Audit Plan 31/03/2023 22/03/2023 Independent Auditor's Report 27/09/2023 27/09/2023 Annual Audit Report 27/09/2023 27/09/2023 Source: Audit Scotland Timetable 33. To support an efficient audit, it is critical that the timetable for producing the annual report and accounts for audit is achieved. We have included a proposed timetable for the audit at Exhibit 5 that has been discussed with management.
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Reporting arrangements, timetable, and audit fee | 11 34. 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. We are identifying ways to work more efficiently to expedite the 2022/23 audits whilst at the same time maintaining high standards of quality. 35. We intend to take a hybrid approach to the 2022/23 audit with a blend of onsite and remote working. We will continue to work closely with management to identify the most efficient approach as appropriate and will keep timeframes and logistics for the completion of the audit under review. Progress will be discussed with management and finance officers over the course of the audit. Exhibit 5 Proposed annual report and accounts timetable Key stage Provisional Date Latest submission date for the receipt of the unaudited annual report and accounts with complete working papers package. 24 July 2023 Latest date for final clearance meeting with the Director of Finance (or equivalent) 1 August 2023 Issue of draft Letter of Representation and proposed Independent Auditor’s Report 12 September 2023 Agreement of audited and unsigned annual report and accounts 12 September 2023 Issue of Annual Audit Report to those charged with governance. 27 September 2023 Signed Independent Auditor’s Report 27 September 2023 Source: Audit Scotland Audit fee 36. In determining the audit fee, we have taken account of the risk exposure of the North Lanarkshire IJB and the planned management assurances in place. The proposed audit fee for 2022/23 is £31,470 as set out in Exhibit 6. 37. 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.
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Reporting arrangements, timetable, and audit fee | 12 Exhibit 6 Audit fees (including VAT) Fee component Fees (£) External Auditor Remuneration 33,680 Contribution to Audit Scotland costs 1,280 Contribution to Performance and Best Value 6,410 Sectoral Cap Adjustment (9,900) Total 2022/23 Audit fee 31,470 Source: Audit Scotland 38. In setting the fee for 2022/23 we have assumed that North Lanarkshire IJB 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.
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Other matters | 13 Other matters Internal audit 39. North Lanarkshire IJB’s internal audit function is provided jointly by the internal audit teams of NHS Lanarkshire and North Lanarkshire Council. 40. While we are not planning to place formal reliance on the work of internal audit in 2022/23, we may consider aspects of internal audit’s work in respect of our wider audit dimension responsibilities. Independence and objectivity 41. 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 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. 42. 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. 43. The appointed auditor for North Lanarkshire IJB is John Boyd, 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 North Lanarkshire IJB. Audit Quality 44. Quality is at the core of public audit in Scotland and is the foundation for building consistency and confidence across all audit work. High quality audits provide assurance, add value and can support public bodies to achieve their objectives. 45. Until 2021/22, the applicable audit quality standard was International Standard on Quality Control 1 (ISQC (UK) 1). This set out an audit practice’s responsibilities for its system of quality control for audits. 46. ISQC(UK) 1 has been replaced by two new audit quality standards: Internal Standards on Quality Management (ISQM (UK) 1) applicable from 15 December 2022 and (ISQM(UK) 2) effective for the 2023/24 audits. Work is underway at Audit Scotland to meet the requirements of these quality standards.
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Other matters | 14 47. Audit Scotland is committed to delivering high quality audits. 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 supplementary 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 England and Wales (ICAEW) have been commissioned to carry out external quality reviews. 48. 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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Appendix 1. Your audit team | 15 Appendix 1. Your audit team The audit team involved in the audit of North Lanarkshire IJB have significant experience in public sector audit. John Boyd Audit Director jboyd@audit-scotland.gov.uk John has overall responsibility for the Audit Engagement. He has considerable audit experience across public sector audits including local government, IJB, pension, health and central government sectors. John is the Audit Scotland Audit Services Group Lead for local authority audit and is a member of the Local Authority (Scotland) Accounting Advisory Committee (LASAAC). Pauline Murray Senior Audit Manager pmurray@audit-scotland.gov.uk Pauline has over 14 years of public sector audit experience and has delivered external audit services to a range of bodies including local authorities, health boards and central government bodies. Fiona Owens Audit Manager fowens@audit- scotland.gov.uk Fiona has 10 years of experience in planning and delivering audits and has delivered external audit services to a range of bodies including local authorities, health boards and central government bodies. Paul Carey Auditor pcarey@audit-scotland.gov.uk Paul has 4 years of experience in delivering audits. Paul will complete the majority of the audit work and work alongside the Audit Manager, Senior Audit Manager and Audit Director to deliver the audit. 49. The local audit team is supported by a specialist technical accounting team, all of whom have significant experience of public bodies and work with accounting regulatory bodies.
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Appendix 1. Your audit team | 16 North Lanarkshire Integration Joint Board Annual Audit Plan 2022/23 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