Bucks Fire & Rescue Service - Internal Audit Report 1 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 and Recommendations
11
Appendix B
List of Staff Consulted
13
File Ref:
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 2
1
Details of Audit The audit review of Bucks Fire & Rescue Service - Core Financial Controls formed part of the agreed audit programme programme for 2005/06. The review was carried out during November 2005. The purpose of the audit was to review the key management controls of the following 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”. opinion”. This assessment assessment is based on work undertaken as outlined in Section 1 of this report. The range of audit opinions is: Very good: All controls are in place to give assurance that the system’s objectives will be met. Good: Most controls are in place to give assurance that the system’s objectives will be met but there are some minor weaknesses. weaknesses. Adequate: The minimum acceptable level of controls is in place and should be improved to a more robust level. Poor: There are not the necessary controls controls in place to give assurance that the system’s objectives will be met. •
•
•
•
3
Executive Summary Following the audit of Bucks Fire & Rescue Service - Core Financial Controls adequate. It was found that the Service the audit opinion is adequate. Service is embedding embedding new working practices following the implementation of SAP. We noted that the control framework has improved over the last twelve months in both its design and performance. However, there are some some areas that still lack comprehensive control of all processes. The main ones are listed below: •
That within existing resource constraints energies are devoted to reconciling the income control accounts. Training for existing staff members may need to be intensified to achieve end of year deadlines.
File Ref:
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 3 •
•
•
That commentaries are included alongside figures to increase information supplied to senior managers and elected members in budget monitoring reports. Reporting areas in management packs and within the system should match to aid 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 been discussed with the Group Manager – Finance Policy.
File Ref:
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 4
4
Background The Fire Authority’s headquarters are in Aylesbury, roughly at the centre of the area it serves. It is i s one of the lowest cost fire authorities authori ties in the UK, costing each local resident an average of just £24 a year compared with a national average of £32.50. This is used to fund the 546 firefighters, operating from 20 strategically placed fire stations – six whole time, four day crewed and 10 retained – and the service’s service’s support staff. Membership Membership of the Buckinghamshire 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 i ncludes the following provisions: £ Employees 17,477,160 Premises 673,459 Transport 1,744,725 Supplies and services 1,014,610 Agency payments 105,271 Support services 412,291 Capital charges 852,928 Firefighter Pension Scheme 2,901,489 Income -1,032,933 Total 24,149,000
The outcome of the previous audit in this area can be summarised as: Date of last audit: Overall last audit opinion: Number of recommendations agreed with Management last audit: (Total) Follow Up: Number of recommendations implemented by Management since last audit: (Financial Control Issues Only)
File Ref:
Aplog Ref: 06/79
27/4/05 POOR High Medium Low High Medium Low
8 11 4 7/8 1/1 0/0
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 5
5
Recommendations and Action Plan
Findings and Consequences Ordering
Recommendation
Priority
Management Management Response and Action Plan
1
Consideration should be given to expanding the ordering system to ensure that all purchases across the Service are purchased in a consistent manner. A revised control framework for ordering will need to be developed. Internal Audit are willing to provide assistance in this area but the framework will be dependent on the modules of the SAP system implemented and the extent to which commitment accounting will be implemented.
HIGH
Response: A project group has been set up to introduce commitment accounting in R3 in SAP. This will be a detailed and long term project and is expected to be implemen im plemented ted during the 2006/07 financial year.
We reviewed a sample of purchases and confirmed that for each payment within our sample a number of corresponding orders had not been raised or attached to the invoice. Some items did not have purchase orders but the control function has historically been based on the payment element not in ordering. Whilst the payment function facilitates easier control, it is actually the ordering process which formally commits the Authority to the spend. Without formal ordering for other purchases, there is a risk that: Inappropriate purchases could be made; Inappropriate terms and conditions of supply could be entered into;
Who to be actioned by: Raff Stuart When to be actioned by: 31.03.2007
•
•
A robust commitment identification system will not exist; and Purchases may not be approved. We noted that the new SAP accounting system currently being adopted by the Service will require that all purchases are supported by a purchase order reference and we fully support the development of this system. The introduction of SAP could lead to the installation of a commitment based accounting system. •
•
File Ref:
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 6 Findings and Consequences
Recommendation
Priority
Management Management Response and Action Plan
A consistent purchasing procedure should be established which supports the achievement of value for money and allows for the development of commitment based accounting using a preferred list of vendors.
MEDIUM
Response:
Quotations & Tendering 2
It is our opinion that purchasing guidelines should be developed which would consider: Requirements of the new SAP accounting system; •
•
Terms and conditions of supply; and
The introduction of R3 commitment accounting in SAP as detailed above will achieve this recommendation.
Who to be actioned by: Raff Stuart When to be actioned by:
Consultant / contractor selection criteria and verification. If consistency were to be achieved, then the Service would be able to demonstrate value for money more easily and the detective control framework would be enhanced. •
st
31 March 2007
Payroll 3
Our testing confirmed that monthly payroll breakdown reports are reported as part of the monthly reporting. Whilst we acknowledge that payroll data is sensitive, it is also the area of greatest risk within the organisation in financial financial value v alue terms. We consider it vital that adequate controls over the detailed payroll are observed. The ability of staff to have an alternative logon, which would allow for authorisation as well as input, is a major risk to the organisation.
That formal procedures are developed to ensure that managers verify payroll payments to employees by tracking report access logs. Management should consider reviewing payroll authorisation routines to ensure that adequate and appropriate segregation of duties are applied.
If for operational purposes an alternative log is needed then it should be kept in a sealed envelope in the safe so that it can only be used in an emergency.
HIGH
Response: The payroll supervisor has two log-ons in SAP – one for input and one for authorisation as we have only one other member of staff trained to input payroll transactions. transacti ons. The payroll supervisor has never used the input log-on as the necessity to do so has never arisen. This could be verified once the audit trails are re-instated by BCC. As an additional control we will keep the additional log-on for the payroll supervisor in a sealed envelope in the safe for emergency use only and after agreeing it’s use with the payroll manager.
Who to be actioned by: Barbara Williams Payroll Manager When to be actioned by: Immediately
File Ref:
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 7 Findings and Consequences
Recommendation
Priority
Management Management Response and Action Plan
That clear procedures are issued for the arrangement for debt write offs with supplementary information and instructions included for doubtful debt provision as soon as possible. That an aged debt analysis is carried out once the income control account is reconciled.
HIGH
Response:
Income 4
We reviewed the debtors management elements of the Financial Regulations and Financial Instructions. It was identified to us that there have not been any write offs during the current financial year and testing also identified that aged debtors could not be readily identified with any degree of certainty due to the delay in reconciling income. We did not see any evidence of a clear policy regarding doubtful debt provision We reviewed a sample of income and confirmed that for each: •
•
•
An invoice had been raised; Income was collected. All income is not reconciled due to difficulties with SAP but is in the process of being rectified.
A policy and procedures will be written for debt management and implemented. The reconciliation of the income bank account is now almost complete and once so written dunning will commence.
Who to be actioned by: Raff Stuart – to write policy Sue Watson- to write procedures Ann Smallbones – to commence dunning When to be actioned by: st
31 March 2006 That within existing resource constraints energies are devoted to reconciling the income control accounts. Training for existing staff members may need to be intensified to achieve end of year deadlines.
HIGH
:
Budget Monitoring & Reporting 5
We confirmed that income & expenditure commentaries are included within the reporting pack, to assist management with their review of the monthly results. Examples of such commentaries include explanation of variances in salaries and associated on-costs. The commentaries are not included alongside variances and are supplied as supporting text for appendixed figures.
File Ref:
That commentaries are included alongside figures to increase the quality of information supplied to senior managers and elected members. In addition, we recommend that: Budgets should be realigned as soon as possible; Formal procedures are developed to document the monthly process from meetings with budget holders through to reporting to
HIGH
Response: We will respond to this point when a report is issued looking at budget monitoring in more detail.
Who to be actioned by:
•
When to be actioned by:
•
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 8 Findings and Consequences
Recommendation
Our review of the financial data provided for management confirmed that comparisons between actual and budget figures are made on a monthly basis. Commentaries are not being supplied for all variances due to the commonly acknowledged problems of budget misalignment. Financial commentaries are included in the reporting packs for significant items (for example salaries, transport, supplies and services etc.).
Priority
Management Management Response and Action Plan
HIGH
Response: The financial instructions and regulations were approved by the F & GP th committee on 29 September 2005 and ratified th by the full Authority on 16 December. They have now been published on the common drive and the whole brigade has been informed.
committee members; •
•
Management sign and date the pack as evidence of review; and Reporting areas in management packs should match areas held in the system to aid reconciliation and facilitate a more transparent and accountable system of budget monitoring.
We will review these areas in more detail during our full Budget Monitoring Audit.
During the course of our review, we identified that the reporting packs were being prepared on a monthly basis, but there was no confirmed date when each pack was finalised. Data prepared is not matched by the organisational structure shown in SAP and accountable officers are not clearly named for each area or for each reporting area it is therefore difficult to see which officers are accountable for budgets and how they can be performance managed / challenged as a result.
Financial Instructions & Regulations 6
Without a robust risk management framework, the Organisation may not identify all key areas of risk which require a control framework being established to assist the achievement of strategic objectives. The control framework would be
File Ref:
Clarify communication and dissemination of Financial Instructions and Financial Regulations released in September 2005. Internal Audit will assist the development of the Assurance Framework during their current work in
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 9 Findings and Consequences
Recommendation
defined within the Financial Instructions and Financial Regulations to ensure that a consistent approach was developed to manage identified risks. The Financial Instructions and Financial Regulations examined as being in force could not be assured as being approved by committee. The risk of uncertainty and unclear financial regulation is therefore unnecessarily increased.
this area.
Priority
Management Management Response and Action Plan In addition a training session has been organised for all senior officers to raise awareness of these documents and their importance throughout the Brigade. Who to be actioned by: Already actioned When to be actioned by:
Our review of the Financial Instructions and Financial Regulations confirmed that the details contained therein are user friendly and fit for the purpose.
Assets and Inventories 7
Our examination of operational equipment, IT and other equipment provided evidence of asset registers being utilised to keep track of equipment held by the Authority. This was broken down by categories and locations and did not provide a comprehensive guide of all equipment suitable for capitalisation recording and reporting purposes. The lack of a single comprehensive register that could be effectively backed up, could lead to the loss of crucial information due to accidental or deliberate damage. There could therefore be a risk of inappropriate decisions as a result of misinformation and a lack
File Ref:
That all asset registers and inventories be consolidated to aid and facilitate effective operational performance delivery and allow for accurate accounting of all assets.
Aplog Ref: 06/79
HIGH
Response: The main assets capitalised on the balance sheet are kept in detail by the Finance Section with the exception of Plant and Equipment. A business case is currently being made for an asset Management and tracking system for monitoring m onitoring and tracking these items. The Authority will give consideration to removing the purchase of equipment from the capital budget thus negating the need for a detailed list of equipment and for operations to inform finance when items are disposed of. Who to be actioned by: Alan Riddet When to be actioned by: Ongoing
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 10 Findings and Consequences
Recommendation
Priority
Management Management Response and Action Plan
HIGH
Response:
of operational accountability and effectiveness due to incomplete consolidated information.
Control Accounts & General Ledger 8
Our testing confirmed that established routines provide adequate segregation of duties within the creditors and journal input system. However, we did note that inconsistent practices do exist as month end journals are not authorised by a second officer. Whilst we identified that an informal check is undertaken, this does not provide an adequate management trail or confirms that calculations are appropriate. This issue will become more pertinent as activity increases. Given that large values are processed through these journals there is a risk that errors will not be detected which materially affect year-end accounting outcomes. This can be picked up via the compensating control of proper month end reporting and budget monitoring if undertaken in a proper manner.
File Ref:
Month end journals should be approved by an appropriate second officer and a more rigorous monthend reporting procedure be implemented.
Aplog Ref: 06/79
This is agreed and will be implemented. Journals will not be input until they have been authorised by a second officer. Who to be actioned by: Jacki Watkinson Diane Ward When to be actioned by: With immediate effect
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 11
Appendix A Summary of Control Objectives and Recommendations The control objectives for Bucks Fire & Rescue Service - Core Financial Controls audit are set out below, together with an assessment of the degree to which the actual controls in place place meet them. them. This is determined by an evaluation of actual actual procedures against expected key controls. Control Objective
Fully met
i n respect of 1 Payroll expenditure is made only in authorised employees and is properly recorded and accounted for 2Valid orders are raised and that correct payments
are made to the correct payee and they are properly accounted for by the Fire Authority and contracts and non-disclosure agreements exist for all main suppliers
Partly met
3 All income due to the organisation is properly
collected, 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 and
that appropriate records are maintained in support of portable and attractive items which fall below the capitalization threshold 6 Bank accounts have been properly established
and maintained in accordance with the Fire Authority’s regulations. 7 Capital assets are acquired at the most economic cost with the most appropriate funding arrangements and are readily identifiable and recorded and changes to assets accurately reflects disposals and other changes 8 The control framework is appropriately defined within Financial Regulations and Standing Orders 9 A satisfactory reporting system exists for exceptions to allocated budgets to be identified i dentified and reported to an appropriately senior level 10 VAT due on supplies made by the Authority are identified and accounted for at the proper time as directed by statute and that the VAT claimed to be
File Ref:
Aplog Ref: 06/79
Not met
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 12 Control Objective
Fully met
Partly met
Not met
credited is properly due under the terms of section 41 of the VAT Act 1994 Totals
0
9
1
Recommendations Priority
Number in Report
High
8
Medium
1
Low
File Ref:
0
Aplog Ref: 06/79
Draft Report – 14/12/2005
Bucks Fire & Rescue Service - Internal Audit Report 13
Appendix B Discussion took place with the following staff Name Sue Watson
Position Group Manager – Finance Policy
Location Brigade HQ
Jacki Watkinson
Area Manager – Finance
Brigade HQ
Raff Stuart
Assistant Director – Finance
Brigade HQ
Eddie Hunt
Station Manager – Technical Services
Brigade HQ
Jean Hughes
Temporary Finance Officer Brigade HQ
Laurie Wylie
Area Manager - PACS
Merlin Centre
The audit review was carried out by David Skinner – Senior Auditor and Sara Doraisamy – Audit Assistant.
File Ref:
Aplog Ref: 06/79
Draft Report – 14/12/2005