Annual Audit Letter
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Annual Audit Letter Cumbria Probation Board Audit 2009/10 The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone. Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies. As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people. Contents Key messages 2 Audit opinion and financial statements 2 Value for money 3 Audit fees 3 Current and future challenges 3 Financial statements and annual governance statement 4 Overall conclusion from the audit 4 Financial management arrangements 4 Quality Control 5 Significant weaknesses in internal control 5 Value for money 6 VFM conclusion 6 Key findings 7 Approach to local value for money work from 2010/11 8 Current and future challenges 9 9 Closing remarks 10 Appendix 1 – Audit fees 11 Appendix 2 – Glossary 12 Audit Commission Annual Audit Letter 1 ƒƒ Key messages This report summarises my findings from the 2009/10 audit. My audit comprises two elements: the audit of your financial statements (pages 4 to 5); and my assessment of your arrangements to achieve ...
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Annual Audit Letter
Cumbria Probation Board
Audit 2009/10
The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone. Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies. As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.
Key messages Audit opinion and financial statements Value for money Audit fees Current and future challenges Financial statements and annual governance statement Overall conclusion from the audit Financial management arrangements Quality Control Significant weaknesses in internal control Value for money VFM conclusion Key findings Approach to local value for money work from 2010/11 Current and future challenges Current and future challenges Closing remarks Appendix 1 Audit fees Appendix 2 Glossary
2 2 3 3 3 4 4 4 5 5 6 6 7 8 9 9 10 11 12
1 r teet LlaA dutioi nnAun CommissAudits nt Cteon
Key messages
This report summarises my findings from the 2009/10 audit. My audit comprises two elements: the audit of your financial statements (pages 4 to 5); and my assessment of your arrangements to achieve value for money in your use of resources (pages 6 to 8). I have included only significant recommendations in this report. Audit opinion and financial statements 1 I was not able to meet the audit deadline set by the National Offender Management Service (NOMS) because there was an initial disagreement on the correct accounting treatment of a material entry within the accounts. The entry was corrected and I gave an unqualified audit opinion on the Board's financial statements on 30 June 2010. 2 I concluded that the Board successfully applied the new financial reporting framework, which was based on year one adoption of International Financial Reporting Standards. 3 However, I found a material error in the way Cumbria Probation Board (the Board) accounts for the cash held in respect of the Domestic Violence Project (DVP) and Scafell Partnership. I also found several errors repeated from the 2008/09 draft accounts. 4 The Board needs to ensure improvements are made to internal controls, especially around: ■ improved quality control checks on draft accounts prior to audit submission; ■ timely completion of Internal Audit programme and annual opinion to support the Statement of Internal Control disclosure; ■ timely journal postings; and ■ adequate segregation of duties within accounts payable.
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Value for money 5 I gave an unqualified value for money conclusion on the Board's arrangements to secure economy, efficiency and effectiveness in its use of resources. In all the areas I assessed against the criteria specified by the Audit Commission, the Board met or exceeded the requirements. Audit fees 6 The total Audit Fee for the year was £31,749. This includes an extra £3,000 due to extra work required on the financial statements audit, as a result of seeking agreement on the treatment of a material error. Appendix 1 provides a breakdown of the audit fee for 2009/10. Current and future challenges 7 The Board had an overspend of £51,000 in 2009/10 and continues to face challenges resulting from the economic downturn and pressure on public sector spending. In the context of the current spending review, the Board needs to focus on: ■ ensuring the resilience of medium term financial strategies; ■ delivering savings and future efficiency plans; ■ securing income streams and funding for capital programmes; ■ adapting to changing patterns of demand and shifting priorities; while ■ maintaining and improving the quality of its services.
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Financial statements and annual governance statement
The Board's financial statements and annual governance statement are important means by which the Board accounts for its stewardship of public funds. I gave an unqualified opinion on the Board's 2009/10 financial statements following a material amendment to the accounts. Overall conclusion from the audit 8 For the first time this year, the financial reporting framework for probation boards was based on International Financial Reporting Standards (IFRS). I found the Board had correctly restated its prior year figures under the new framework and reported its 2009/10 financial performance using IFRS. I only identified one error in the restatement, which management agreed to correct. Overall, I concluded the Board managed the transition to IFRS successfully. 9 I asked management to correct errors I identified in the draft accounts, unless they were clearly trivial. Management agreed to the amendments I recommended, except for £42,000 of cash balances held by the Board on behalf of the Scafell Project. One of the errors, relating to £102,000 cash held by the Board on behalf of the Domestic Violence Partnership, was material and was removed from the Board's cash balances by management. Material errors are those that, because of their high value, affect a reader's understanding of the accounts. Financial management arrangements 10 At the Board meeting on 25 May 2010 the Treasurer reported the projected out-turn for the year would be an overspend of £18,500. The accounts presented for audit showed an overspend of £40,000 and following the audit adjustments the overspend increased to £51,000. These overspends are before the cost of capital and IAS19 Pension adjustments. As Cumbria Probation Trust needs to save £410,000 in 2010/11. Recommendation R1 Ensure expenditure does not exceed the available financing.
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Quality Control 11 The draft accounts presented for audit were of a reasonable standard. However, I identified several errors, some of which had been made in previous years. The Board needs to ensure that these errors do not recur in 2010/11. Significant weaknesses in internal control 12 Delays in completing the Internal Audit programme meant that I was not able to rely on their work to lessen my external audit work. Internal Audit's late preparation of their annual opinion has made it difficult for the Board to compile a timely and robust Statement on Internal Control 13 I identified weaknesses in your internal control arrangements and made recommendations in my Annual Governance Report. The Board needs to ensure improvements are made to internal controls, especially around timely journal postings and adequate segregation of duties within accounts payable. Recommendation
R2 Ensure the Internal Audit programme informs the Statement of Internal Control and assurance framework on a timely basis.
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Value for money
I considered whether the Board is managing and using its money, time and people to deliver value for money. I assessed your performance against the criteria specified by the Audit Commission and have reported the outcome as the value for money (VFM) conclusion. VFM conclusion 14 I assessed your arrangements to achieve economy, efficiency and effectiveness in your use of money, time and people against criteria specified by the Audit Commission. The Audit Commission specifies each year which Key Lines of Enquiry (KLOE) are the relevant criteria for the VFM conclusion at each audited body. 15 Table 1 outlines a summary of my judgements against the criteria assessed for 2009/10.
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Table 1: Key Lines of Enquiry and judgements
Criteria
Ade uate arrangements?
Yes
Managing finances Planning for financial health Does the organisation plan its finances effectively to deliver its strategic priorities and secure sound financial health? Understanding costs and achieving efficiencies Yes Does the organisation have a sound understanding of its costs and performance and achieve efficiencies in its activities? Financial Reporting Yes Is the organisations financial reporting timely reliable and does it meet the needs of internal users, stakeholders and local people? Governing the business Risk management and internal control Yes Does the organisation manage its risks and maintain a sound system of internal control? Managing resources Workforce Yes Does the organisation plan, organise and develop its workforce effectively to support the achievement of its strategic priorities?
16 I issued an unqualified conclusion stating the Board had satisfactory arrangements to secure economy, efficiency and effectiveness in its use of resources. Key findings 17 The Board plans its resources to deliver its strategic priorities. The Four Year Revenue Budget identifies future cost pressures and areas where efficiency savings can be made. 18 The Board understands its costs and investigates areas of cost variance. For example, it has undertaken a Best Value Review on Community Payback.
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19 My review of the Workforce Plan found it aligns the management and development of the workforce with the achievement of its strategic objectives. 20 The Board is aware of the importance of identifying and managing its risks. A new risk register is in place which the Board reviews regularly. I also notice Board Members have had recent NOMS facilitated risk management training. In order to achieve improvement, efficiencies and innovation the Board needs to focus on strategic risks and set its levels of risk exposure. Recommendation R3 Ensure the Board keeps a focus on strategic risks and makes use of its risks management arrangements to drive improvement, efficiencies and innovation.
Approach to local value for money work from 2010/11 21 Given the scale of pressures facing public bodies in the current economic climate, the Audit Commission has been reviewing its work programme for 2010/11 onwards. This review has included discussions with key stakeholders of possible options for a new approach to local value for money (VFM) audit work. The Commission aims to introduce a new, more targeted and better value approach to our local VFM audit work. 22 My work will focus on a reduced number of reporting criteria, specified by the Commission, concentrating on reviewing how organisations: ■ secure financial resilience; and ■ challenge how economy, efficiency and effectiveness are secured. 23 I will determine a local programme of VFM audit work based on my audit risk assessment, informed by these criteria and my statutory responsibilities. I will continue to report the results of all my local VFM audit work and the key messages for the Board in my annual report to those charged with governance and in my annual audit letter.
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Current and future challenges
Current and future challenges 24 I acknowledge the Board continues to face challenges resulting from the economic downturn and pressure on public sector spending. I know the Board can show improvements in its business planning. It has a four-year Strategic Plan 2009-2013, and has undertaken budget projections for this four-year period with the aim of identifying cost pressures and required efficiencies. Recommendation
R4 Ensure financial management arrangements are able to deliver the required economies and efficiencies, while maintaining the quality of service.
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