ITEM 10 Audit Scotland Annual Audit Plan (AAR) 2023 24
North Lanarkshire Council · 22 May 2024
Back to IJB Performance, Finance and Audit Committee — 22 May 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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REPORT Item No: 10 SUBJECT: Audit Scotland Annual Audit Plan (AAR) 2023/24 TO: IJB Performance, Finance and Audit Committee Lead Officer for Report: Ross McGuffie Chief Officer Author(s) of Report Fiona Owens Audit Scotland DATE: 22 May 2024 1. PURPOSE OF REPORT 1.1 This paper is coming to the Performance, Finance and Audit (PFA) Committee for: For approval For endorsement For noting 1.2 This report provides the Annual Audit Plan 2023/24 from Audit Scotland, the IJB’s appointed external auditors. 2. ROUTE TO THE PERFORMANCE, FINANCE AND AUDIT COMMITTEE 2.1 This paper has been: Prepared By: Audit Scotland ☒ Reviewed By: Chief Officer ☒ Endorsed By: ☐ 3. RECOMMENDATIONS 3.1 It is recommended that the IJB PFA Committee: (1) Acknowledge the Annual Audit Plan 2023/24 at Appendix 1. 4. VARIATIONS TO DIRECTIONS Yes No N/A 5. BACKGROUND/SUMMARY OF KEY ISSUES 5.1 The Accounts Commission appointed Audit Scotland as the IJB’s external auditor for the five-year period from 2022/23. 5.2 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. 6. CONCLUSIONS 6.1 The formal Annual Audit Plan has now been completed and is at Appendix 1. 6.2 The plan provides an overview of key issues arising from the audit planning process including a summary of the proposed audit approach, consideration of key audit risks, how wider audit scope work will be carried out and a timetable for key audit outputs. 1
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6.3 Committee 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 to fulfil their responsibilities. 7. IMPLICATIONS 7.1 NATIONAL OUTCOMES People are able to look after and improve their own health and wellbeing and live in good health for longer ☐ People, including those with disabilities or long-term conditions, or who are frail, are able to live, as far as reasonably practicable, independently and at home or in a homely setting in their community ☐ People who use Health and Social Care Services have positive experiences of those services, and have dignity respected ☐ Health and Social Care Services are centred on helping to maintain or improve the quality of life of people who use those services ☐ Health and Social Care Services contribute to reducing health inequalities ☐ People who use Health and Social Care Services are safe from harm ☐ People who work in Health and Social Care Services feel engaged with the work they do and are supported to continuously improve the information, support, care, and treatment they provide ☐ Resources are used effectively and efficiently in the provision of Health and Social Care Services ☒ 7.2 ASSOCIATED MEASURE(S) A comprehensive performance framework is established across the health and social work partnership to monitor progress in respect of the achievement of agreed outcomes. 7.3 FINANCIAL This paper has been reviewed by Finance: Yes No N/A 7.4 RISK ASSESSMENT/RISK MANAGEMENT The strategic financial risks detailed in the IJB Risk Register has been updated where necessary and are included in a separate report to the IJB. 7.5 ENGAGEMENT & PARTICIPATION Please tick the engagement and participation objectives that link(s) with this piece of work and provide further details on the engagement and participation that was undertaken. Objectives Further details ☒ Involve stakeholders in the development work aimed at achieving the national outcomes □ Provide stakeholders with information on how to get involved 2
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□ Ensure a diverse range of engagement and participation and opportunities are in 3
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place to suit different needs □ Measure how well we involve community stakeholders in the planning, design, and delivery of our services ☐Provide regular feedback on how stakeholder engagement and participation is shaping and influencing service development and delivery ☐Provide support to enable stakeholder representatives to participate meaningfully and confidently at meetings □ Develop participation guidelines to ensure a common understanding and set of expectations for both stakeholders and partnership staff ☒ Support engagement planning and participation in localities, taking account of other engagement activity and local plans across the Community Planning Partnership 7.6 INEQUALITIES & FAIRER SCOTLAND DUTY Equality and Diversity Impact Assessment Completed & Fairer Scotland Impact Assessment Form Completed and EQIA added to website: Yes No N/A 8. BACKGROUND PAPERS None. 9. APPENDICES Appendix 1- Audit Scotland Annual Audit Plan 2023/24 CHIEF ACCOUNTABLE OFFICER (or Depute) Members seeking further information about any aspect of this report, please contact the following; Ross McGuffie Ross.McGuffie@lanarkshire.scot.nhs.uk 4
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Appendix 1 North Lanarkshire Integration Joint Board Annual Audit Plan Prepared for North Lanarkshire Integration Joint Board March 2024 5
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Annual Audit Plan | 2 Contents Introduction 3 Annual accounts 5 Wider Scope and Best Value 9 Reporting arrangements, timetable, and audit fee 10 Other matters 13 6
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Introduction | 3 Introduction Summary of planned audit work 1. I, John Boyd, have been appointed by the Accounts Commission as external auditor of North Lanarkshire Integration Joint Board (North Lanarkshire IJB) for the period from 2022/23 until 2026/27. The 2023/24 financial year is therefore the second of my five-year audit appointment. 2. This document summarises the work plan for my 2023/24 audit. The main elements of the audit include: an audit of the financial statements and an opinion on whether they give a true and fair view and are free from material misstatement an audit opinion on other statutory information published with the financial statements in the annual accounts including the Management Commentary, the Governance Statement, and the Remuneration Report consideration of arrangements in relation to wider scope areas: financial management; financial sustainability; vision, leadership and governance; and use of resources to improve outcomes consideration of Best Value arrangements review North Lanarkshire IJB’s arrangements for preparing and publishing its Annual Performance Report. Respective responsibilities of the auditor and Audited Body 3. The Code of Au d it P ractice sets out in detail the respective responsibilities of the auditor and the North Lanarkshire IJB. Key responsibilities are summarised below. Auditor responsibilities 4. My responsibilities as appointed auditor are established by the Local Government (Scotland) Act 1973 and the Code of Audit Practice (including su p p lemen ta ry g u ida nce ) and guided by the Financial Reporting Council’s Ethical Standard. 5. 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 wider scope arrangements in place at the North Lanarkshire IJB. In doing this, we aim to support improvement and accountability. 7
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Introduction | 4 North Lanarkshire IJB and Chief Officer responsibilities 6. North Lanarkshire IJB is responsible for maintaining adequate accounting records and internal controls, and preparing financial statements for audit that give a true and fair view. They are also required to produce other reports in the annual accounts in accordance with statutory requirements. 7. 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, propriety, and regularity that enable them to deliver their objectives. Adding Value We aim to add value by: tailoring audit work to the circumstances of North Lanarkshire IJB and the audit risks identified; being constructive and forward looking; providing independent conclusions; attending meetings of the Performance, Finance and Audit Committee; and by recommending and encouraging good practice. In so doing, we will help North Lanarkshire IJB promote improved standards of governance, better management and decision making, and more effective use of resources. 8
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Annual accounts | 5 Annual accounts Introduction 8. The annual accounts are an essential part of demonstrating North Lanarkshire IJB’s stewardship of resources and its performance in the use of those resources. The appointed auditor is required to perform an audit of the financial statements, consider other information within the annual accounts, and express a number of audit opinions in an Independent Auditor's Report in accordance with International Standards on Auditing (ISAs) in the UK, Practice Note 10 from the Public Audit Forum which interprets the ISAs for the public sector, and guidance from Audit Scotland. Our audit focuses on the areas of highest risk. As part of our planning process, we perform a risk assessment highlighting the audit risks relating to each of the main financial systems relevant to the production of the financial statements. Materiality 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 the audit to obtain reasonable assurance about whether 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 2023/24 audit 9. We assess materiality at different levels as described in Exh ibit 1 . The materiality values for North Lanarkshire IJB are set out in Exh ibit 1 Exhibit 1 2023/24 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. Materiality has been set based on our assessment of the needs of the users of the financial statements and the nature of North Lanarkshire IJB operations. For the year ended 31 March 2024, we have set our materiality at 2% of gross expenditure based on the audited financial statements for 2022/23. £14.7 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 are required. Using our £11.025 million 9
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Annual accounts | 6 professional judgement, we have assessed performance materiality at 75% of planning materiality. Reporting threshold (i.e. clearly trivial) – We are required to report to those charged with governance on all unadjusted misstatements more than the ‘reporting threshold' amount. £735 thousand Source: Audit Scotland Significant risks of material misstatement to the financial statements 10. 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. 11. 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. 12. Based on our risk assessment process, we identified the following significant risks of material misstatement to the financial statements. These are risks which have the greatest impact on our planned audit procedures. Exh ibit 2 summarises the nature of the risks, management’s sources of assurance over these risks, and the further audit procedures we plan to perform to gain assurance over the risks. Exhibit 2 2023/24 Significant risks of material misstatement to the financial statements Significant risk of material misstatement Management’s sources of assurance Planned audit response 1. Risk of material misstatement due to fraud caused by management override of controls As stated in ISA (UK) 240, management is in a unique position to perpetrate fraud because of 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 10
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Annual accounts | 7 Significant risk of material misstatement Management’s sources of assurance Planned audit response management’s ability to override controls that otherwise appear to be operating effectively. allocation of income and expenditure. Review of significant adjustments at year-end where we consider there to be greatest risk of material misstatement through management override of controls. Review of financial monitoring reports during the year. Assess the adequacy of controls in place for identifying and disclosing related party relationship and transactions in the financial statements Evaluate any significant unusual transactions outside the normal course of business. Source: Audit Scotland 13. 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 revenue. There is a risk that revenue may be misstated resulting in a material misstatement in the financial statements. We have rebutted this presumed risk in 2023/24 as, while the possibility of fraud exists, we do not judge it to be a significant risk due to the revenue streams coming from the partner bodies of NHS Lanarkshire and North Lanarkshire Council. 14. 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 spending bodies, the risk of material misstatement due to fraud related to expenditure recognition may in some cases be greater than the risk relating to revenue recognition. Due to the nature of the North Lanarkshire IJB’s expenditure, we have also rebutted the significant risk of material misstatement due to fraud in expenditure in 2023/24. 11
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Annual accounts | 8 15. Assurances over the accuracy and completeness of IJB transactions will be obtained from the auditors of North Lanarkshire Council and NHS Lanarkshire. We have not, therefore, incorporated specific work into our audit plan in these areas over and above our standard audit procedures. Other areas of audit focus 16. As part of our assessment of audit risks, we have not identified any other areas of specific audit focus. 12
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Wider Scope and Best Value | 9 Wider Scope and Best Value Introduction 17. Reflecting the fact that public money is involved, public audit is planned and undertaken from a wider perspective than in the private sector. The Code of Audit Practice sets out the four areas that frame the wider scope of public sector audit, and requires auditors to consider and conclude on the effectiveness and appropriateness of the arrangements in place for each wider scope area in audited bodies. 18. In summary, the four wider scope areas are: Financial management – this 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 – we will look ahead to consider whether the body is planning effectively to continue to deliver services, also comment on financial sustainability in the medium (two to five years) to longer term (longer than five years). Vision, leadership, and governance – we conclude on the clarity of plans 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 19. 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 Best Value 20. Auditors have a duty to be satisfied that bodies that fall within section 106 of the Local Government (Scotland) Act 1973 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. 13
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Reporting arrangements, timetable, and audit fee | 10 Reporting arrangements, timetable, and audit fee Reporting arrangements 21. Matters arising from our audit will be reported on a timely basis and will include agreed action plans. Draft reports will be shared with the relevant officers to confirm factual accuracy. 22. We will provide: an Independent Auditor’s Report to North Lanarkshire IJB and the Accounts Commission setting out our opinions on the annual accounts the North Lanarkshire IJB and the Accounts Commission with an Annual Audit Report containing observations and recommendations on significant matters which have arisen during the audit and conclusions on wider scope areas. 23. Exh ibit 4 outlines the target dates for our audit outputs set by the Accounts Commission. In determining the target reporting date, due regard is paid to the dates for approving the annual accounts set out in regulations of 30 September 2024. 24. We plan to issue our Independent Auditor’s Report and Annual Audit Report by the target date. Exhibit 4 2023/24 Audit outputs Audit Output Target date IJB Committee Date Annual Audit Plan 31 March 2024 20 February 2024 Independent Auditor's Report 30 September 2024 September 2024 Annual Audit Report 30 September 2024 September 2024 Source: Audit Scotland 25. All Annual Audit Plans and the outputs detailed in Exh ibit 4, and any other outputs on matters of public interest, will be published on our website: www.au d it - sco tla nd .g ov.u k. 14
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Reporting arrangements, timetable, and audit fee | 11 Timetable 26. 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 Exh ibit 5 that has been discussed with management. 27. 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 accounts timetable Latest submission date for the receipt of the unaudited annual accounts with complete working papers package. June 2024 Latest date for final clearance meeting with the Director of Finance (or equivalent) 13 September 2024 Issue of draft Letter of Representation and proposed Independent Auditor’s Report 20 September 2024 Agreement of audited and unsigned annual accounts 20 September 2024 Issue of Annual Audit Report to those charged with governance. By 30 September 2024 Signed Independent Auditor’s Report By 30 September 2024 Source: Audit Scotland Audit fee 28. In determining the audit fee, we have taken account of the risk exposure of North Lanarkshire IJB and the planned management assurances in place. Fee levels are also impacted by inflation which increases the cost of audit delivery. The proposed audit fee for 2023/24 is £33,360 as set out in Exh ibit 6 . Exhibit 6 Audit fees (including VAT) Fee component Fees (£) External Auditor Remuneration 36,150 Key stage Provisional Date 15
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Reporting arrangements, timetable, and audit fee | 12 Pooled costs 1,320 16
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Reporting arrangements, timetable, and audit fee | 13 Fee component Fees (£) Contribution to Performance and Best Value 7,720 Sectoral Cap Adjustment (11,830) Total 2023/24 fee 33,360 Source: Audit Scotland 29. In setting the fee for 2023/24, we have assumed that North Lanarkshire IJB has effective governance arrangements and will prepare a comprehensive and accurate set of annual 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. 17
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Other matters | 13 Other matters Internal audit 30. North Lanarkshire IJB’s internal audit function is provided jointly by the internal audit teams of NHS Lanarkshire and North Lanarkshire Council. 31. While we are not planning to place formal reliance on the work of internal audit in 2023/24, we may consider aspects of internal audit’s work in respect of our wider audit dimension responsibilities. Independence and objectivity The audit team are independent of North Lanarkshire IJB in accordance with relevant ethical requirements, including the Financial Reporting Council’s Ethical Standard. This standard imposes stringent rules to ensure the independence and objectivity of auditors. 32. Audit Scotland has robust arrangements in place to ensure compliance with Ethical Standard 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. The Ethical Standard requires auditors to communicate any relationships that may affect the independence and objectivity of the audit team. We are not aware of any such relationships pertaining to the audit of North Lanarkshire IJB. Audit Quality 33. Audit Scotland is committed to the consistent delivery of high-quality public audit. Audit quality requires ongoing attention and improvement to keep pace with external and internal changes. A document explaining the arrangements for providing assurance on the delivery of high-quality audits is available from the Au d it Sco tlan d web site . 34. The International Standards on Quality Management (ISQM) applicable to Audit Scotland for 2023/24 audits are: ISQM (UK) 1 which deals with an audit organisation’s responsibilities to design, implement and operate a system of quality management (SoQM) for audits. Our SoQM consists of a variety of components, such as: our governance arrangements and culture to support audit quality, compliance with ethical requirements, ensuring we are dedicated to high-quality audit through our engagement performance and resourcing arrangements, and ensuring we have robust quality monitoring arrangements in place. Audit Scotland carries out an annual evaluation of our SoQM and has concluded that we comply with this standard. 18
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Other matters | 14 ISQM (UK) 2 which sets out arrangements for conducting engagement quality reviews, which are performed by senior management not involved in the audit to review significant judgements and conclusions reached by the audit team, and the appropriateness of proposed audit opinions of high-risk audit engagements. 35. To monitor quality at an individual audit level, Audit Scotland also carries out internal quality reviews of a sample of audits. Additionally, the Institute of Chartered Accountants of England and Wales (ICAEW) carries out independent quality reviews. 36. Actions to address deficiencies identified by internal and external quality reviews are included in a rolling Quality Improvement Action Plan which is used to support continuous improvement. Progress with implementing planned actions is regularly monitored by Audit Scotland’s Quality and Ethics Committee. 37. Audit Scotland may periodically seek your views on the quality of our service provision. The team would also welcome feedback more informally at any time. 19
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Other matters | 15 38. North Lanarkshire IJB Annual Audit Plan 2023/24 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 20