internal audit report annex

8/14/2019 Internal Audit Report Annex

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Bucks Fire & Rescue Service - Internal Audit Report1

File Ref: Aplog Ref: 06/79 Draft Report 14/12/2005

ANNEX

Contents

Section Page

1 Details of the Audit 2

2 Audit Opinion 2

3 Executive Summary 2

4 Background 4

5 Recommendations and Action Plan 5

Appendix A Summary of Control Objectives 11and Recommendations

Appendix B List of Staff Consulted 13


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1 Details of Audit

The audit review of Bucks Fire & Rescue Service - Core Financial Controlsformed part of the agreed audit programme for 2005/06. The review wascarried out during November 2005.

The purpose of the audit was to review the key management controls of thefollowing systems:

Payroll Creditors Debtors General Ledger Assets and Inventories Banking (including reconciliations) Capital Financial Regulations and Standing Orders Budget Monitoring and Reporting (full audit due December 2005) VAT

A detailed list of areas examined can be seen at Appendix A.

2 Audit Opinion

An audit will result in an overall audit opinion. This assessment is based onwork undertaken as outlined in Section 1 of this report. The range of auditopinions is:

Very good: All controls are in place to give assurance that the systemsobjectives will be met.

Good: Most controls are in place to give assurance that the systemsobjectives will be met but there are some minor weaknesses.

Adequate: The minimum acceptable level of controls is in place and shouldbe improved to a more robust level.

Poor: There are not the necessary controls in place to give assurance thatthe systems objectives will be met.

3 Executive Summary

Following the audit of Bucks Fire & Rescue Service - Core Financial Controlsthe audit opinion is adequate. It was found that the Service is embedding newworking practices following the implementation of SAP. We noted that thecontrol framework has improved over the last twelve months in both its designand performance. However, there are some areas that still lack comprehensivecontrol of all processes. The main ones are listed below:

That within existing resource constraints energies are devoted to reconcilingthe income control accounts. Training for existing staff members may need tobe intensified to achieve end of year deadlines.


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That commentaries are included alongside figures to increase informationsupplied to senior managers and elected members in budget monitoringreports.

Reporting areas in management packs and within the system should match toaid reconciliation and facilitate a more transparent and accountable system of

budget monitoring. Seek committee approval for new Financial Instructions and Financial

Regulations released in September 2005.

The detailed findings are shown elsewhere in the report and have beendiscussed with the Group Manager Finance Policy.


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4 Background

The Fire Authoritys headquarters are in Aylesbury, roughly at the centre of thearea it serves. It is one of the lowest cost fire authorities in the UK, costing each

local resident an average of just 24 a year compared with a national averageof 32.50. This is used to fund the 546 firefighters, operating from 20strategically placed fire stations six whole time, four day crewed and 10retained and the services support staff. Membership of the Buckinghamshire& Milton Keynes Fire Authority is drawn from Buckinghamshire County Council(12 elected members) and Milton Keynes Council (five elected members).

The budget for 2005/06 includes the following provisions:

Employees 17,477,160Premises 673,459Transport 1,744,725Supplies and services 1,014,610Agency payments 105,271Support services 412,291Capital charges 852,928Firefighter Pension Scheme 2,901,489Income -1,032,933Total 24,149,000

The outcome of the previous audit in this area can be summarised as:

Date of last audit: 27/4/05Overall last audit opinion: POOR

Number of recommendations agreedwith Management last audit: (Total)

HighMedium

Low

8114

Follow Up: Number ofrecommendations implemented byManagement since last audit:(Financial Control Issues Only)

HighMedium

Low

7/81/10/0


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5 Recommendations and Action Plan

Findings and

Consequences

Recommendation Priority Management Response

and Action PlanOrdering1 We reviewed a sample of

purchases and confirmedthat for each paymentwithin our sample anumber of correspondingorders had not beenraised or attached to theinvoice. Some items didnot have purchase ordersbut the control functionhas historically been

based on the paymentelement not in ordering.Whilst the paymentfunction facilitates easiercontrol, it is actually theordering process whichformally commits theAuthority to the spend.

Without formal orderingfor other purchases, thereis a risk that:

Inappropriate

purchases could bemade;

Inappropriate termsand conditions ofsupply could beentered into;

A robust commitmentidentification systemwill not exist; and

Purchases may notbe approved.

We noted that the new

SAP accounting systemcurrently being adoptedby the Service will requirethat all purchases aresupported by a purchaseorder reference and wefully support thedevelopment of thissystem. The introductionof SAP could lead to theinstallation of acommitment basedaccounting system.

Consideration should begiven to expanding theordering system to ensurethat all purchases acrossthe Service are purchasedin a consistent manner.

A revised control frameworkfor ordering will need to bedeveloped. Internal Auditare willing to provideassistance in this area butthe framework will bedependent on the modulesof the SAP systemimplemented and the extentto which commitmentaccounting will beimplemented.

HIGH Response:A project group has been setup to introduce commitmentaccounting in R3 in SAP.This will be a detailed andlong term project and isexpected to be implementedduring the 2006/07 financialyear.

Who to be actioned by:Raff StuartWhen to be actioned by:31.03.2007


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Findings andConsequences

Recommendation Priority Management Responseand Action Plan

Quotations & Tendering2 It is our opinion that

purchasing guidelines

should be developedwhich would consider:

Requirements of thenew SAP accountingsystem;

Terms and conditionsof supply; and

Consultant /contractor selectioncriteria andverification.

If consistency were to be

achieved, then theService would be able todemonstrate value formoney more easily andthe detective controlframework would beenhanced.

A consistent purchasingprocedure should be

established which supportsthe achievement of valuefor money and allows forthe development ofcommitment basedaccounting using apreferred list of vendors.

MEDIUM Response:

The introduction of R3commitment accounting inSAP as detailed above willachieve thisrecommendation.

Who to be actioned by:Raff StuartWhen to be actioned by:

31st

March 2007

Payroll3 Our testing confirmed that

monthly payrollbreakdown reports arereported as part of themonthly reporting.

Whilst we acknowledgethat payroll data issensitive, it is also thearea of greatest riskwithin the organisation infinancial value terms. Weconsider it vital thatadequate controls overthe detailed payroll areobserved.

The ability of staff to havean alternative logon,

which would allow forauthorisation as well asinput, is a major risk tothe organisation.

That formal procedures aredeveloped to ensure thatmanagers verify payrollpayments to employees bytracking report access logs.

Management shouldconsider reviewing payrollauthorisation routines toensure that adequate andappropriate segregation ofduties are applied.

If for operational purposesan alternative log is needed

then it should be kept in asealed envelope in the safeso that it can only be usedin an emergency.

HIGH Response:

The payroll supervisor hastwo log-ons in SAP one forinput and one for

authorisation as we haveonly one other member ofstaff trained to input payrolltransactions. The payrollsupervisor has never usedthe input log-on as thenecessity to do so has neverarisen. This could beverified once the audit trailsare re-instated by BCC. Asan additional control we willkeep the additional log-on forthe payroll supervisor in a

sealed envelope in the safefor emergency use only andafter agreeing its use withthe payroll manager.

Who to be actioned by:Barbara WilliamsPayroll ManagerWhen to be actioned by:Immediately


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Income4 We reviewed the debtors

management elements of

the Financial Regulationsand FinancialInstructions. It wasidentified to us that therehave not been any writeoffs during the currentfinancial year and testingalso identified that ageddebtors could not bereadily identified with anydegree of certainty due tothe delay in reconcilingincome. We did not see

any evidence of a clearpolicy regarding doubtfuldebt provision

We reviewed a sample ofincome and confirmedthat for each:

An invoice had beenraised;

Income wascollected.

All income is notreconciled due todifficulties with SAPbut is in the processof being rectified.

That clear procedures areissued for the arrangement

for debt write offs withsupplementary informationand instructions included fordoubtful debt provision assoon as possible. That anaged debt analysis iscarried out once the incomecontrol account isreconciled.

That within existingresource constraintsenergies are devoted toreconciling the incomecontrol accounts. Trainingfor existing staff membersmay need to be intensifiedto achieve end of yeardeadlines.

HIGH

HIGH

Response:

A policy and procedures willbe written for debtmanagement andimplemented. Thereconciliation of the incomebank account is now almostcomplete and once sowritten dunning willcommence.

Who to be actioned by:Raff Stuart to write policy

Sue Watson- to writeproceduresAnn Smallbones tocommence dunningWhen to be actioned by:

31st

March 2006

:

Budget Monitoring & Reporting5 We confirmed that

income & expenditurecommentaries areincluded within thereporting pack, to assistmanagement with theirreview of the monthlyresults. Examples of suchcommentaries includeexplanation of variancesin salaries and associatedon-costs. Thecommentaries are notincluded alongsidevariances and aresupplied as supportingtext for appendixed

figures.

That commentaries areincluded alongside figuresto increase the quality ofinformation supplied tosenior managers andelected members.

In addition, we recommendthat:

Budgets should be re-aligned as soon aspossible;

Formal procedures aredeveloped to documentthe monthly processfrom meetings with

budget holders throughto reporting to

HIGH Response:

We will respond to this pointwhen a report is issuedlooking at budget monitoringin more detail.

Who to be actioned by:

When to be actioned by:


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Our review of thefinancial data provided formanagement confirmedthat comparisonsbetween actual andbudget figures are madeon a monthly basis.

Commentaries are notbeing supplied for allvariances due to thecommonly acknowledgedproblems of budget mis-alignment.

Financial commentariesare included in thereporting packs for

significant items (forexample salaries,transport, supplies andservices etc.).

During the course of ourreview, we identified thatthe reporting packs werebeing prepared on amonthly basis, but therewas no confirmed datewhen each pack was

finalised.Data prepared is notmatched by theorganisational structureshown in SAP andaccountable officers arenot clearly named foreach area or for eachreporting area it istherefore difficult to seewhich officers areaccountable for budgetsand how they can be

performance managed /challenged as a result.

committee members;

Management sign anddate the pack as

evidence of review; and Reporting areas in

management packsshould match areasheld in the system toaid reconciliation andfacilitate a moretransparent andaccountable system ofbudget monitoring.

We will review these areas

in more detail during our fullBudget Monitoring Audit.

Financial Instructions & Regulations6 Without a robust risk

management framework,the Organisation may notidentify all key areas ofrisk which require acontrol framework beingestablished to assist theachievement of strategic

objectives. The controlframework would be

Clarify communication anddissemination of FinancialInstructions and FinancialRegulations released inSeptember 2005.

Internal Audit will assist thedevelopment of the

Assurance Frameworkduring their current work in

HIGH Response:The financial instructionsand regulations wereapproved by the F & GPcommittee on 29

th

September 2005 and ratifiedby the full Authority on 16

th

December. They have now

been published on thecommon drive and the wholebrigade has been informed.


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defined within theFinancial Instructions andFinancial Regulations toensure that a consistentapproach was developedto manage identifiedrisks. The FinancialInstructions and FinancialRegulations examined asbeing in force could notbe assured as beingapproved by committee.The risk of uncertaintyand unclear financialregulation is thereforeunnecessarily increased.

Our review of theFinancial Instructions andFinancial Regulationsconfirmed that the detailscontained therein areuser friendly and fit forthe purpose.

this area.In addition a training sessionhas been organised for allsenior officers to raiseawareness of thesedocuments and theirimportance throughout theBrigade.

Who to be actioned by:Already actionedWhen to be actioned by:

Assets and Inventories7 Our examination of

operational equipment, ITand other equipmentprovided evidence ofasset registers beingutilised to keep track ofequipment held by theAuthority. This wasbroken down bycategories and locationsand did not provide acomprehensive guide of

all equipment suitable forcapitalisation recordingand reporting purposes.

The lack of a singlecomprehensive registerthat could be effectivelybacked up, could lead tothe loss of crucialinformation due toaccidental or deliberatedamage.

There could therefore bea risk of inappropriate

decisions as a result ofmisinformation and a lack

That all asset registers andinventories be consolidatedto aid and facilitate effectiveoperational performancedelivery and allow foraccurate accounting of allassets.

HIGH Response:

The main assets capitalisedon the balance sheet arekept in detail by the FinanceSection with the exception ofPlant and Equipment. Abusiness case is currentlybeing made for an assetManagement and trackingsystem for monitoring andtracking these items. TheAuthority will giveconsideration to removingthe purchase of equipmentfrom the capital budget thusnegating the need for adetailed list of equipmentand for operations to informfinance when items aredisposed of.

Who to be actioned by:Alan RiddetWhen to be actioned by:

Ongoing


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of operationalaccountability andeffectiveness due toincomplete consolidatedinformation.

Control Accounts & General Ledger8 Our testing confirmed that

established routinesprovide adequatesegregation of dutieswithin the creditors andjournal input system.However, we did notethat inconsistent practicesdo exist as month endjournals are not

authorised by a secondofficer. Whilst weidentified that an informalcheck is undertaken, thisdoes not provide anadequate managementtrail or confirms thatcalculations areappropriate. This issuewill become morepertinent as activityincreases. Given thatlarge values areprocessed through thesejournals there is a riskthat errors will not bedetected which materiallyaffect year-endaccounting outcomes.This can be picked up viathe compensating controlof proper month endreporting and budgetmonitoring if undertakenin a proper manner.

Month end journals shouldbe approved by anappropriate second officerand a more rigorous month-end reporting procedure beimplemented.

HIGH Response:

This is agreed and will beimplemented. Journals willnot be input until they havebeen authorised by a secondofficer.

Who to be actioned by:

Jacki WatkinsonDiane Ward

When to be actioned by:

With immediate effect


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Appendix A

Summary of Control Objectives and Recommendations

The control objectives for Bucks Fire & Rescue Service - Core Financial Controlsaudit are set out below, together with an assessment of the degree to which theactual controls in place meet them. This is determined by an evaluation of actualprocedures against expected key controls.

Control Objective Fullymet

Partlymet

Not met

1 Payroll expenditure is made only in respect ofauthorised employees and is properly recorded andaccounted for

2Valid orders are raised and that correct paymentsare made to the correct payee and they areproperly accounted for by the Fire Authority andcontracts and non-disclosure agreements exist forall main suppliers

3 All income due to the organisation is properlycollected, banked intact and correctly accounted for

4 All financial transactions of the Fire Authority are

complete and secure

5 Assets are readily identified and recorded andthat appropriate records are maintained in supportof portable and attractive items which fall below thecapitalization threshold

6 Bank accounts have been properly establishedand maintained in accordance with the FireAuthoritys regulations.

7 Capital assets are acquired at the most economic

cost with the most appropriate fundingarrangements and are readily identifiable andrecorded and changes to assets accurately reflectsdisposals and other changes

8 The control framework is appropriately definedwithin Financial Regulations and Standing Orders

9 A satisfactory reporting system exists forexceptions to allocated budgets to be identified andreported to an appropriately senior level

10 VAT due on supplies made by the Authority are

identified and accounted for at the proper time asdirected by statute and that the VAT claimed to be


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Control Objective Fullymet

Partlymet

Not met

credited is properly due under the terms of section41 of the VAT Act 1994Totals 0 9 1

Recommendations

Priority Number in Report

High8

Medium1

Low0


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Appendix B

Discussion took place with the following staff

Name Position LocationSue Watson

Jacki Watkinson

Raff Stuart

Eddie Hunt

Jean Hughes

Laurie Wylie

Group Manager FinancePolicy

Area Manager Finance

Assistant Director Finance

Station Manager

Technical Services

Temporary Finance Officer

Area Manager - PACS

Brigade HQ

Brigade HQ

Brigade HQ

Brigade HQ

Brigade HQ

Merlin Centre

The audit review was carried out by David Skinner Senior Auditor and SaraDoraisamy Audit Assistant.

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