ITEM 11 24-25 NLIJB Annual Audit Plan
North Lanarkshire Council · 25 February 2025
Back to IJB Performance, Finance and Audit Committee — 25 February 2025 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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North Lanarkshire Integration Joint Board Annual Audit Plan 2024/25 Prepared for North Lanarkshire Integration Joint Board February 2025
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North Lanarkshire Integration Joint Board Annual Audit Plan | 2 Contents Introduction 3 Audit scope and responsibilities 4 Audit of the annual accounts 6 Wider scope and Best Value 10 Reporting arrangements, timetable and audit fee 12 Other matters 15 Accessibility You can find out more and read this report using assistive technology on our website www.audit.scot/accessibility.
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Introduction | 3 Introduction Purpose of the Annual Audit Plan 1. The purpose of this Annual Audit Plan is to provide an overview of the planned scope and timing of the 2024/25 audit of North Lanarkshire Integration Joint Board’s (North Lanarkshire IJB’s) annual accounts. It outlines the audit work planned to meet the audit requirements set out in auditing standards and the Code of Audit Practice, including supplementary guidance. Appointed auditor and independence 2. John Boyd, of Audit Scotland, has been appointed by the Accounts Commission as external auditor of North Lanarkshire IJB for the period from 2022/23 until 2026/27. The 2024/25 financial year is therefore the third of the five-year audit appointment. 3. John Boyd and 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. Audit Scotland has robust arrangements in place to ensure compliance with ethical standards. The arrangements are overseen by the Executive Director of Innovation and Quality, who serves as Audit Scotland’s Ethics Partner. 4. The Ethical Standard requires auditors to communicate any relationships that may affect the independence and objectivity of the audit team. There are no such relationships pertaining to the audit of North Lanarkshire IJB to communicate.
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Audit scope and responsibilities | 4 Audit scope and responsibilities Scope of the audit 5. The audit is performed in accordance with the Code of Audit Practice, including supplementary guidance, International Standards on Auditing (UK), and relevant legislation. These set out the requirements for the scope of the audit which includes: • 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 opinion on other statutory information published with the financial statements in the annual accounts, including the Management Commentary, the Annual Governance Statement, and the audited part of the Remuneration Report. • Conclusions on North Lanarkshire IJB’s arrangements in relation to wider scope areas: Financial Management, Financial Sustainability, Vision, Leadership, and Governance, and Use of Resources to Improve Outcomes. • Reporting on North Lanarkshire IJB’s arrangements for securing Best Value. • A review of North Lanarkshire IJB’s arrangements for preparing and publishing statutory performance information. • Provision of an Annual Audit Report setting out significant matters identified from the audit of the annual accounts and the wider scope areas specified in the Code of Audit Practice. Responsibilities 6. The Code of Audit Practice sets out the respective responsibilities of North Lanarkshire IJB and the auditor. A summary of the key responsibilities is outlined below. Auditor’s responsibilities 7. The responsibilities of auditors in the public sector are established in the Local Government (Scotland) Act 1973. These include providing an independent opinion on the financial statements and other information reported within the annual accounts and concluding on North Lanarkshire IJB’s arrangements in place for the wider scope areas.
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Audit scope and responsibilities | 5 North Lanarkshire IJB responsibilities 8. North Lanarkshire IJB has primary responsibility for ensuring proper financial stewardship of public funds, compliance with relevant legislation and establishing effective arrangements for governance, propriety and regularity that enables it to successfully deliver its objectives. The features of proper financial stewardship include: • Establishing arrangements to ensure the proper conduct of its affairs. • Preparation of annual accounts, comprising financial statements and other information that gives a true and fair view. • Establishing arrangements for the prevention and detection of fraud, error and irregularities, and bribery and corruption. • Implementing arrangements to ensure its financial position is soundly based. • Making arrangements to secure Best Value. • Establishing an internal audit function.
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Audit of the annual accounts | 6 Audit of the annual accounts Introduction 9. The audit of the annual accounts is driven by materiality and the risks of material misstatement in the financial statements, with greater attention being given to the significant risks of material misstatement. This chapter outlines materiality, the significant risks of material misstatement that have been identified, and the impact these have on the planned audit procedures. Materiality 10. The concept of materiality is applied by auditors in planning and performing an audit, and in evaluating the effect of any uncorrected misstatements on the financial statements or other information reported in the annual accounts. 11. Broadly, the concept of materiality is to determine whether matters identified during the audit could reasonably be expected to influence the decisions of users of the financial statements. Auditors set a monetary threshold when determining materiality, although some issues may be considered material by their nature. Therefore, materiality is ultimately a matter of the auditor’s professional judgement. 12. The materiality levels determined for the audit of North Lanarkshire IJB are outlined in Exhibit 1. Exhibit 1 2024/25 Materiality levels for North Lanarkshire IJB Materiality Amount Materiality – based on an assessment of the needs of users of the financial statements and the nature of North Lanarkshire IJB’s operations, the benchmark used to determine materiality is gross expenditure based on the audited 2023/24 financial statements. Materiality has been set at 2% of the benchmark. £16.176 million Performance materiality – this acts as a trigger point. If the aggregate of misstatements identified during the audit exceeds performance materiality, this could indicate that further audit procedures are required. Using professional judgement, performance materiality has been set at 75% of planning materiality. £12.132 million
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Audit of the annual accounts | 7 Materiality Amount Reporting threshold – all misstatements greater than the reporting threshold will be reported. £809 thousand Source: Audit Scotland Significant risks of material misstatement to the financial statements 13. The risk assessment process draws on the audit team’s cumulative knowledge of North Lanarkshire IJB, including the nature of its operations and its significant transaction streams, the system of internal control, governance arrangements and processes, and developments that could impact on its financial reporting. 14. Based on the risk assessment process, significant risks of material misstatement to the financial statements have been identified and these are summarised in Exhibit 2, page 8. These are the risks which have the greatest impact on the planned audit approach, and the planned audit procedures in response to the risks are outlined in Exhibit 2. 15. The risk assessment process is an iterative and dynamic process. The assessment of risks set out in this Annual Audit Plan and Exhibit 2 may change as more information and evidence is obtained over the course of the audit. Where such changes occur, these will be reported to North Lanarkshire IJB and those charged with governance, where relevant. 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 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 2024/25 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. 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 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 North Lanarkshire IJB’s expenditure, being the commissioning of services from partner bodies, we have also rebutted the significant risk of material misstatement due to fraud in expenditure in 2024/25. 18. Assurances over the accuracy and completeness of IJB transactions will be obtained from the auditors of North Lanarkshire Council and NHS
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Audit of the annual accounts | 8 Lanarkshire. We have not, therefore, incorporated specific work into our audit plan in these areas over and above our standard audit procedures. Exhibit 2 Significant risks of material misstatement to the financial statements Risk of material misstatement Planned audit response Fraud caused by management override of controls Management is in a unique position to perpetrate fraud because of management’s ability to override controls that otherwise appear to be operating effectively. The audit team will: • Agree balances and transactions to North Lanarkshire Council and NHS Lanarkshire financial reports/ledger/correspondence. • Assurances will be obtained from the auditors of North Lanarkshire Council and NHS Lanarkshire 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 management override of controls. • Review of financial monitoring reports during the year. • Evaluate significant transactions outside the normal course of business. • Assess the adequacy of controls in place for identifying and disclosing related party relationships and transactions in the financial statements. Source: Audit Scotland Other areas of audit focus 19. As part of our assessment of audit risks, we have not identified any other areas of specific audit focus. Key audit matters 20. The Code of Audit Practice requires public sector auditors to communicate key audit matters. Key audit matters are those matters that, in the auditor’s professional judgement, are of most significance to the audit of the financial statements and require most attention when performing the audit. 21. In determining key audit matters, auditors consider:
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Audit of the annual accounts | 9 • Areas of higher or significant risk of material misstatement. • Areas where significant judgement is required, including accounting estimates that are subject to a high degree of estimation uncertainty. • Significant events or transactions that occurred during the year. 22. The matters determined to be key audit matters will be communicated in the Annual Audit Report. Exhibit 2 outlines the significant risks of material misstatement to the financial statements that have been identified, including those that have greatest impact on the planned audit procedures and require most attention when performing the audit.
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Wider scope and Best Value | 10 Wider scope and Best Value Introduction 23. Reflecting the fact that public money is involved, the Code of Audit Practice requires that public audit is planned and undertaken from a wider perspective than in the private sector. The wider scope audit set out by the Code of Audit Practice broadens the audit of the annual accounts to include consideration of additional aspects or risks in four wider scope areas, which are summarised below: • Financial Management – this means having sound budgetary processes. Factors that can impact on North Lanarkshire IJB being able to secure sound financial management include the strength of the financial management culture, accountability, and arrangements to prevent and detect fraud, error and other irregularities, bribery and corruption. • Financial Sustainability – this means looking forward over the medium and longer term in planning the services to be delivered and how they will be delivered effectively. This is assessed by considering North Lanarkshire IJB’s medium- to longer-term planning for service delivery. • Vision, Leadership and Governance – this means having a clear vision and strategy, with set priorities within the vision and strategy. This is assessed by considering the clarity of plans in place to deliver the vision and strategy and the effectiveness of the governance arrangements to support delivery. • Use of Resources to Improve Outcomes – this means using resources to meet stated outcomes and improvement objectives through effective planning and working with partners and communities. This is assessed by considering North Lanarkshire IJB’s arrangements for ensuing resources are deployed to improve strategic outcomes, meet the needs of service users, and deliver continuous improvement. 24. A conclusion on the effectiveness and appropriateness of arrangements North Lanarkshire IJB has in place for each of the wider scope areas will be reported in the Annual Audit Report.
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Wider scope and Best Value | 11 Wider scope and Best Value risks 25. The risk assessment process has identified one risk in the wider scope area as outlined in Exhibit 3, and this includes the planned audit procedures in response to the risk. Exhibit 3 Wider scope and Best Value risks Description of risk Planned audit response Financial sustainability In recent years North Lanarkshire IJB has achieved short term financial balance. However, it continues to be faced with significant financial challenges and difficult decisions to ensure resources are allocated to areas of strategic priority and user need. Further work is required to ensure sustainable financial balance is maintained. The audit team will: • Review financial plans developed and assess the appropriateness of the financial plans and any assumptions made. • Assess if financial plans developed are aligned to North Lanarkshire IJB’s strategic priorities. • Review financial monitoring reports to assess the financial position, including progress of partner bodies in achieving planned savings. • Review controls in place and updates to financial plans to assess financial sustainability. Source: Audit Scotland Best Value 26. Under the Code of Audit Practice, the duty on auditors to consider the arrangements an audited body has in place to secure Best Value applies to audited bodies that fall within section 106 of the Local Government (Scotland) Act 1973. 27. Consideration of the arrangements North Lanarkshire IJB has in place to secure Best Value will be carried out alongside the wider scope audit, and a conclusion on those arrangements will be reported in the Annual Audit Report.
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Reporting arrangements, timetable and audit fee | 12 Reporting arrangements, timetable and audit fee Audit outputs 28. The outputs from the 2024/25 audit include: • This Annual Audit Plan. • An Independent Auditor’s Report to North Lanarkshire IJB and the Accounts Commission setting out opinions on the annual accounts. • An Annual Audit Report to North Lanarkshire IJB and the Accounts Commission setting out significant matters identified from the audit of the annual accounts, conclusions from the wider scope and Best Value audit, and recommendations where required. 29. The matters to be reported in the outputs will be discussed with North Lanarkshire IJB for factual accuracy before they are issued. All outputs from the audit will be published on Audit Scotland’s website, apart from the Independent Auditor’s Report, which is included in the audited annual accounts. 30. Target dates for the audit outputs are set by the Accounts Commission. In setting the target dates for the audit outputs, consideration is given to the statutory date for approving the annual accounts, which is 30 September 2025 for local government bodies. 31. The Independent Auditor’s Report and Annual Audit Report are planned to be issued by the target date of 30 September 2025. Audit timetable 32. Achieving the timetable for production of the annual accounts, supported by complete and accurate working papers, is critical to delivery of the audit to agreed target dates. Exhibit 4 includes a timetable for the audit, which has been agreed with management. Agreed target dates will be kept under review as the audit progresses, and any changes required, and their potential impact, will be discussed with North Lanarkshire IJB and reported to those charged with governance, where required.
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Reporting arrangements, timetable and audit fee | 13 Exhibit 4 2024/25 audit timetable Audit activity North Lanarkshire IJB target date Audit team target date Relevant committee date Issue of Annual Audit Plan N/A 14 February 2025 25 February 2025 Annual accounts: • Consideration of unaudited annual accounts by those charged with governance 30 June 2025 N/A 18 June 2025 • Submission of unaudited annual accounts and all working papers to audit team 30 June 2025 N/A N/A • Latest date for audit clearance meeting 21 August 2025 21 August 2025 N/A • Agreement of audited and unsigned annual accounts 22 August 2025 22 August 2025 N/A • Issue of draft Letter of Representation, proposed Independent Auditor’s Report, and proposed Annual Audit Report N/A 5 September 2025 17 September 2025 • Approval by those charged with governance and signing of audited annual accounts 17 September 2025 N/A 17 September 2025 • Signing of Independent Auditor’s Report and issue of Annual Audit Report N/A 30 September 2025 N/A Source: Audit Scotland Audit fee 33. North Lanarkshire IJB’s audit fee is determined in line with Audit Scotland’s fee setting arrangements. The proposed audit fee for the 2024/25 audit is set out in Exhibit 5. 34. In setting the audit fee, it is assumed that North Lanarkshire IJB has effective governance arrangements in place and the complete annual accounts will be provided for audit in line with the agreed timetable. The audit fee assumes there will be no significant changes to the planned scope of the audit. Where the audit cannot proceed as planned, for
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Reporting arrangements, timetable and audit fee | 14 example, due to incomplete or inadequate working papers, the audit fee may need to be increased. Exhibit 5 Audit fee (including VAT) Fee component1 Fee (£) External auditor remuneration 37,670 Pooled costs, such as travel and subsistence costs 950 Contribution to the performance audit programme [local government only] 7,230 Adjustment for average audit price increase (11,850) Total 2024/25 fee 34,000 Source: Audit Scotland 1 Information on the components that make up the total fee can be found in Audit Scotland’s Audit management and quality guidance.
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Other matters | 15 Other matters Internal audit 35. North Lanarkshire IJB’s internal audit function is provided jointly by the internal audit teams of NHS Lanarkshire and North Lanarkshire Council. 36. While we are not planning to place formal reliance on the work of internal audit in 2024/25, we may consider aspects of internal audit’s work in respect of our wider audit dimension responsibilities. Audit quality 37. Audit Scotland is committed to the consistent delivery of high-quality audit. Audit quality requires ongoing attention and improvement to keep pace with external and internal changes. Details of the arrangements in place for the delivery of high-quality audits is available from the Audit Scotland website. 38. The International Standards on Quality Management (ISQM) applicable to Audit Scotland for 2024/25 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. Audit Scotland’s SoQM consists of a variety of components, such as: governance arrangements and culture to support audit quality, compliance with ethical requirements, ensuring Audit Scotland is dedicated to high- quality audit through engagement performance and resourcing arrangements, and ensuring there are robust quality monitoring arrangements in place. Audit Scotland carries out an annual evaluation of its SoQM and has concluded it complies with this standard. • ISQM (UK) 2, which sets out arrangements for conducting engagement quality reviews, which are performed by senior management not involved in an audit, to review significant judgements and conclusions reached by the audit team, and the appropriateness of proposed audit opinions on high-risk audits. 39. To monitor quality at an individual audit level, Audit Scotland carries out internal quality reviews on a sample of audits. Additionally, the Institute of Chartered Accountants of England and Wales (ICAEW) carries out independent quality reviews on a sample of audits.
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Other matters | 16 40. 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 monitored on a regular basis by Audit Scotland’s Quality and Ethics Committee. 41. Audit Scotland may periodically seek the views of North Lanarkshire IJB on the quality of audit services provided. The audit team would also welcome feedback at any time.
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North Lanarkshire Integration Joint Board Annual Audit Plan 2024/25 Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN Phone: 0131 625 1500 Email: info@audit.scot www.audit.scot AS.5.0