The Audit Plan Manchester City Council 2014 15

Download as pdf or txt
Download as pdf or txt
You are on page 1of 20

Manchester City Council Item 10

Audit Committee 11 June 2015

The Audit Plan


for Manchester City Council

Year ended 31 March 2015


April 2015

Mark Heap
Engagement Lead
T 0161 234 6375
M 07880 456204
E mark.r.heap@uk.gt.com

John Farrar
Engagement Manager
T 0161 234 6384
M 07880 456200
E john.farrar@uk.gt.com

Simon Livesey
Engagement Team Lead
T 0161 234 6370
M 07887 958437
161
E simon.d.livesey@uk.gt.com
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
Manchester City Council Item 10
Audit Committee 11 June 2015

The contents of this report relate only to the matters which have come to
our attention, which we believe need to be reported to you as part of our
audit process. It is not a comprehensive record of all the relevant matters,
which may be subject to change, and in particular we cannot be held
responsible to you for reporting all of the risks which may affect the
Council or any weaknesses in your internal controls. This report has been
prepared solely for your benefit and should not be quoted in whole or in
part without our prior written consent. We do not accept any responsibility
for any loss occasioned to any third party acting, or refraining from acting
on the basis of the content of this report, as this report was not prepared
for, nor intended for, any other purpose.
162
Manchester City Council Item 10
Audit Committee 11 June 2015

Contents
Section Page
1. Understanding your business 4-5
2. Developments relevant to your business and the audit 6-7
3. Our audit approach 8-9
4. Significant risks identified 10 - 11
5. Other risks 12
6. Group scope and risk assessment 13
7. Interim audit work 14
8. Value for Money 15
9. Logistics and our team 16
10. Fees and independence 17
11. Communication of audit matters with those charged with governance 18 - 19

163
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
3
Manchester City Council Item 10
Audit Committee 11 June 2015

Understanding your business


In planning our audit we need to understand the challenges and opportunities the City Council is facing. We set out a summary of our understanding
below.
Challenges/opportunities
1. Budget Settlement 2. Devolution and collaborative working with the NHS
In February 2013 the Council approved a Medium Term Financial Plan • The devolution of approximately £6bn of Health and Social Care
for 2013/15 following the Comprehensive Spending Review for this budgets to Greater Manchester will present significant
period. The impact for the Council was the need to deliver £80m opportunities and challenges in 2015/16 and beyond, as
savings across 2013/14 and 2014/15. The Council has recently transformational changes take place to integrate service delivery.
considered a suite of budget reports, including a Strategic Response for • Devolution of powers to Greater Manchester in relation to housing,
2015/17, identifying a £59m budget gap for 2015/16 rising to £91m for transport, employment and skills will also present the Council with
2016/17. At the same time the population of Manchester continues to real opportunities and challenges.
grow and there are increasing demands for school places and pressure • Development of new working arrangements to deliver
on social care budgets. Manchester's "Living Longer, Living Better" programme of reform
of health and social care services, funded from the Better Care
Fund pooled budget with the Council and the three Manchester
Clinical Commissioning Groups pooling £44m in 2015/16.

Our response

 We will review your Medium Term Financial Plan and financial  We will discuss your plans in these areas through our regular
strategy as part of our work on your arrangements for financial meetings with senior management and those charged with
resilience. governance, providing a view where appropriate.

164
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan 4
Manchester City Council Item 10
Understanding
Audit Committee your business (continued) 11 June 2015

Challenges/opportunities

3. Transforming Children's Services 4. Business Rates Localisation


• Children's Services at the Council and the Local • The Government announced changes to the backdating rules
Safeguarding Board in the Manchester area were judged concerning the alteration of rateable values in December 2014. The
"inadequate" by Ofsted in September 2014. Since this changes mean that ratepayer appeals against ratings valuations can
time the Council has established an Improvement Board, only be backdated to the period 1 April 2010 to 1 April 2015 if made
developed an Improvement Action Plan, made changes to before 1 April 2015.
the service's leadership team and, working in partnership
with other stakeholders, introduced a Multi-Agency
Safeguarding Hub. The Council recognises that much has
still to be achieved and, notwithstanding overall budgetary
constraints, it has prepared a Children's Services
Investment Plan.

Our response

As part of our work to inform our Value for Money We will continue to liaise closely with the Council's finance team in
Conclusion we will monitor the Council's progress in relation to accounting for business rates. In particular, we will take
securing improvements. In particular, we will consider: account of the Council's arrangements for refreshing its provision for
business rates appeals
• performance against key indicators that the Council has
agreed to monitor outcomes
• the governance arrangements surrounding the
Improvement Action Plan and the Children's Services
Investment Plan.

165
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan 5
Manchester City Council Item 10
Audit Committee 11 June 2015

Developments relevant to your business and the audit


In planning our audit we also consider the impact of key developments in the sector and take account of national audit requirements as set out in the
Code of Audit Practice ("the Code") and associated guidance.
Developments and other requirements

1.Financial reporting 2. Legislation 3. Corporate governance


 Changes to the CIPFA Code of Practice  Local Government  Annual Governance
 Changes to the recognition of school land and buildings Finance settlement. Statement (AGS)
on local authority balance sheets  Explanatory Foreword.
 Adoption of new group accounting standards (IFRS 10,11
and 12)
 Future changes – Transport Infrastructure.

Our response

We will assess whether:  We will discuss the  We will review the


 the Council's financial statements comply with the impact of legislative arrangements the Council
requirements of the CIPFA Code of Practice through changes with the Council has in place for the
discussions with management and our substantive through our regular production of the AGS
audit testing meetings with senior  We will review the AGS
management and those and the Explanatory
 schools are accounted for appropriately taking into charged with governance, Foreword to consider
account the latest guidance providing a view where whether they are
 the group boundary is recognised in accordance appropriate. consistent with our
with the Code and joint arrangements are accounted knowledge.
for correctly.
We will discuss preparations for future Code changes,
including changes relating to Transport Infrastructure,
with Council officers. 166
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
6
Manchester City Council Item 10
Audit Committee 11 June 2015

Developments relevant to your business and the audit (continued)


In planning our audit we also consider the impact of key developments in the sector and take account of national audit requirements as set out in the
Code of Audit Practice ("the Code") and associated guidance.
Developments and other requirements

4. Better Care Fund 5. Financial Pressures 6. Other requirements


 Better Care Fund (BCF) plans  Managing service provision  The Council is required to submit
and the associated pooled with less resource a Whole of Government accounts
budgets became operational  Progress against savings pack on which we provide an
from 1 April 2015. plans. audit opinion
 The Council completes grant
claims and returns on which audit
certification is required.

Our response

 We will consider whether the  We will review the Council's  We will carry out work on the
BCF is a risk in the context of performance against the WGA pack in accordance with
our VfM conclusion and will 2014/15 budget, including requirements
carry out further work if consideration of performance  We will certify the housing benefit
required. against the savings plan subsidy claim in accordance with
 We will undertake a review of the requirements specified by
Financial Resilience as part of Public Sector Audit Appointments
our VfM conclusion. Ltd. This company took on the
Audit Commission's
responsibilities for housing benefit
grant certification from 1 April
2015.

167
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan 7
Manchester City Council Item 10
Audit Committee 11 June 2015

Our audit approach


Our audit approach follows the requirements of the International Auditing Standards (ISAs). We have summarised below the key stages involved:
Initial audit planning
At the initial planning stage of our audit we update our understanding of the City Council. Our work at this stage includes a combination of:
• meeting with the Council's senior officers
• meeting with Internal Audit and taking account of IA's work programme
• reviewing minutes of Council meetings
• reviewing financial information, including budget monitoring reports
• taking account of any changes in the financial reporting framework.
We set out on pages 4 and 5 of this Audit Plan a high level summary of our understanding of the Council and the key challenges and opportunities it
faces.

Risk assessment
Our audit is risk-based and we develop an Audit Plan that responds to the risks and issues we have identified at the initial planning and control
evaluation stages. We consider different types of risks including inherent risks, significant risks and other risks such as those arising from system
changes and issues identified in prior years. Our audit focuses on risks of material misstatement of the financial statements, and we prioritise identified
risks and determine the nature and extent of audit work necessary to address them. Pages 10 to 13 of this Audit Plan provide more detail on our risk-
based approach to the audit.

Control evaluation
Auditing standards require that we evaluate the design effectiveness of internal controls over the financial reporting process to identify areas of
weakness that could lead to material misstatement. We consider an item as being material to the financial statements if, through its omission or non-
disclosure, the financial statements would no longer show a true or fair view. We focus our control evaluation work on the high risk areas of the financial
statements. In order to assess whether controls have been implemented as intended, we conduct a combination of inquiry and observation procedures,
and, where appropriate, transaction walkthroughs.

168
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
8
Manchester City Council Item 10
Audit Committee 11 June 2015

Our audit approach - continued

Financial statements audit


As part of the financial statements audit we undertake detailed testing on material income, expenditure, balances and disclosures within the
Council's financial statements.

Conclusion and reporting


After completion of our audit testing we consider the impact of any misstatements and omissions we have identified, both individually and in
aggregate, on the financial statements. We then assess whether the financial statements give a true and fair view of the Council's financial position
and its income and expenditure for the year. We take into account significant events that have taken place after the balance sheet date as well as
representations from senior officers and those charged with governance. We summarise the findings and conclusions from our audit in our Audit
Findings Report.

Throughout the course of our audit we document our work using Grant Thornton's "Voyager" audit software. Voyager is an intelligent software
program that stores audit evidence and creates tailored audit testing programmes that ensure compliance with International Standards on Auditing
(ISAs).

169
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
9
Manchester City Council Item 10
Audit Committee 11 June 2015

Significant risks identified


"Significant risks often relate to significant non-routine transactions and judgmental matters. Non-routine transactions are transactions that are unusual,
either due to size or nature, and that therefore occur infrequently. Judgmental matters may include the development of accounting estimates for which
there is significant measurement uncertainty" (ISA 315 – Identifying and assessing the risks of material misstatements through understanding the entity
and its environment).
In this section we outline the significant risks of material misstatement which we have identified. There are two presumed significant risks which are
applicable to all audits under auditing standards (International Standards on Auditing – ISAs) which are listed below:

Significant risk Description Substantive audit procedures


The revenue cycle includes Under ISA 240 (the auditor's responsibilities Work completed to date:
fraudulent transactions. relating to fraud in an audit of financial  Identification of the significant revenue streams at the Council and
statements) there is a presumed risk that consideration of the applicability of revenue fraud risk to each cycle
revenue may be misstated due to the
improper recognition of revenue. Having considered the risk factors set out in ISA240 and the nature of
the revenue streams at the Council, we have determined that the risk of
This presumption can be rebutted if the fraud arising from revenue recognition can be rebutted, because:
auditor concludes that there is no risk of
material misstatement due to fraud relating • there is little incentive to manipulate revenue recognition
to revenue recognition. • opportunities to manipulate revenue recognition are very limited
• the culture and ethical frameworks of local authorities, including at the
Council, mean that all forms of fraud are seen as unacceptable.

Management over-ride of Under ISA 240 there is a presumed risk that Planned audit work:
controls. the risk of management over-ride of controls  Review of accounting estimates, judgments and decisions made by
is present in all entities. management
 Testing of journal entries
 Review of expected unusual significant transactions
 Tests of detail on unusual significant transactions.

170
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
10
Manchester City Council Item 10
Audit Committee 11 June 2015

Significant risks identified (continued)


Significant risk Description Substantive audit procedures
Accounting implications The Council's finance officers will need to Work completed to date:
arising from the CIPFA make and disclose significant judgements in  We have shared a Grant Thornton briefing paper on the subject of
Code of Practice on Local preparing the 2014/15 financial statements in accounting for local authority maintained schools with Council finance
Authority Accounting relation to the non-current assets of officers.
2014/15 and LAAP Bulletin Voluntary Aided, Voluntary Controlled and
101 (Accounting for non- Foundation Schools. These judgements  We have discussed the Council's approach to establishing and
current assets used by local need to take account of the legal ownership documenting available facts, considering rights, obligations and the
authority maintained of non-current school assets, the substance of arrangements.
schools). circumstances under which schools occupy Further work planned:
them, rights and obligations and the  We will continue to work closely with the Council's finance officers as
substance of arrangements. We have they finalise the Council's judgements and accounting proposals, and
identified a significant audit risk as the we will assess the reasonableness of the judgements on which the
judgements required are complex, potentially financial statements are prepared.
subjective in nature and will potentially have
a material impact on the non-current assets
recognised on the Council's Balance Sheet.

171
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
11
Manchester City Council Item 10
Audit Committee 11 June 2015

Other risks
"The auditor should evaluate the design and determine the implementation of the entity's controls, including relevant control activities, over
those risks for which, in the auditor's judgment, it is not possible or practicable to reduce the risks of material misstatement at the assertion
level to an acceptably low level with audit evidence obtained only from substantive procedures" (ISA 315).

Other reasonably
possible risks Description Planned audit work
Operating expenses Operating expenses understated  Update our accounting system and key controls documentation and undertake system
or not recorded in correct period. walkthroughs
 Substantive testing of expenditure ensuring valid spend and appropriate categorisation
within net cost of services headings in the comprehensive income and expenditure
statement.

Operating expenses Creditors understated or not  Update our accounting system and key controls documentation and undertake system
recorded in the correct period. walkthroughs
 Sample test payables and accrued expenditure, including reviewing post year end
invoices and payments.

Employee remuneration Remuneration expenses not  Update our accounting system and key controls documentation and undertake system
correct. walkthroughs
 Sample test employee expenses to staff records, pay rates and classification in the
nominal ledger.
Welfare expenditure Welfare benefits improperly  Update our accounting system and key controls documentation and undertake system
computed. walkthroughs
 Completion of "HB Count" testing Module 2 (uprating), Module 3 (detailed testing),
Module 4 (analytical review) and Module 5 (software diagnostic tool).

172
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
12
Manchester City Council Item 10
Audit Committee 11 June 2015

Group audit scope and risk assessment


ISA 600 (audits of group financial statements) requires that as Group auditors we obtain sufficient appropriate audit evidence regarding the financial
information of the components and the consolidation process to express an opinion on whether the group financial statements are prepared, in all
material respects, in accordance with the applicable financial reporting framework.

Level of response
Component Significant? required under ISA 600 Risks identified Planned audit approach
Manchester Yes Comprehensive  Alignment of group accounting policies Early audit engagement with
Airport Holdings  Adequacy of disclosures within the group the Council's finance team.
Limited (MAHL) financial statements.
Early engagement with
MAHL's external auditor
KPMG UK LLP to
understand and inform their
audit risk assessment
procedures. We will review
the outcome of the full
scope UK statutory audit to
be performed by KPMG on
MAHL's 2014/15 financial
statements.
Destination No Analytical N/A Desktop review.
Manchester Ltd

173
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
13
Manchester City Council Item 10
Audit Committee 11 June 2015

Interim audit work


Scope

As part of the interim audit work and in advance of our final accounts audit fieldwork, we have considered:

• risk assessment procedures to inform our audit plan and the work we need to perform on the Council's financial statements.

In completing our interim audit work, we will consider:

• the Council's arrangements for estimating a provision for business rates appeals

• Internal Audit's work on the Council's key financial systems

• walkthrough testing to confirm whether controls are implemented as per our understanding in areas where we have identified a risk of material
misstatement

• a review of Information Technology (IT) controls

• the Council's arrangements for the production of its 2014/15 Annual Governance Statement (AGS) and review a draft of the AGS.

174
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
14
Manchester City Council Item 10
Audit Committee 11 June 2015

Value for Money Code criteria Work to be undertaken

Introduction The Council has


proper arrangements Risk-based work focusing on arrangements
The Code of Audit Practice requires us to issue a conclusion on relating to financial governance, strategic
in place for:
whether the Council has put in place proper arrangements for financial planning and financial control.
• securing financial
securing economy, efficiency and effectiveness in its use of resilience
resources. This is known as the Value for Money (VfM) conclusion. • challenging how it
secures economy,
efficiency and
2014/15 VFM conclusion
effectiveness in its
Our Value for Money conclusion will be based on two reporting use of resources. Specifically we will:
criteria specified by the Audit Commission. • review the Council against financial
We will tailor our VfM work to address high risk areas as set out resilience assessment criteria and
understand any changes from the prior
opposite.
year
The results of all our local VfM audit work and key messages will be • analyse and comment on key performance
reported in a Financial Resilience report, our Audit Findings report indicators of financial resilience
and in the Annual Audit Letter. We will agree any additional reporting • carry out a review of the Council's savings
to the Council on a review-by-review basis. plans for 2015/16 to 2016/17 with suitable
We will consider stress testing
whether the Council
is prioritising its • take account of the Council's progress in
resources with tighter addressing the recommendations made
budget. following Ofsted's 2014 inspection of
Children's Services
• consider the Council's progress in relation
to the implementation of the Better Care
Fund.

175
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
15
Manchester City Council Item 10
Audit Committee 11 June 2015

Logistics and our team


The audit cycle

March / April 2015 July-August 2015 September 2015 November 2015 Date Activity

Interim audit Final accounts Completion/ Feb 2015 Planning meeting


Debrief
visit visit reporting

Key phases of our audit March Interim site work


2015

2014-2015 June
2015
The audit plan
presented to Audit
Our team Committee
Mark Heap John Farrar 1 July Year end fieldwork
Engagement Lead Engagement Manager 2015 commences
T 0161 234 6475 T 0161 234 6384
M 07880 456204 M 07880 456200 Sept Audit findings
E mark.r.heap@uk.gt.com E john.farrar@uk.gt.com 2015 clearance meeting

Simon Livesey Paul Spinks Sept Audit Committee


Engagement Team Leader Senior Manager - Technical Support 2015 meeting to report our
T 0161 234 6370 T 0113 200 2554 findings
M 07887 958437 M 07798 831962
E simon.d.livesey@uk.gt.com E paul.spinks@uk.gt.com Sept Sign financial
2015 statements and VfM
conclusion
Pearce Clayton
Manager – IT Audit Support Sept Issue Annual Audit
T 020 7865 2795 2015 Letter
M 07971 7553026
E pearce.a.clayton@uk.gt.com
176
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
16
Manchester City Council Item 10
Audit Committee 11 June 2015

Fees and independence


Audit fees Fees for other services
2014/15 2013/14
£ £ Service Fees £
Manchester City Council audit 276,222 276,222 Provision of an Accountant's Report relating to the HCA Decent 4,750
Grant certification 15,050 16,550 Homes Standard Programme (in December 2014)
Total 291,272 292,772 Provision of an Accountant's Report relating to the Teachers' 4,200
Pensions Return for 2013/14 (in December 2014)
Our fee assumptions include:
 Supporting schedules to all figures in the Total 8,950
accounts are supplied by the agreed dates
and in accordance with the agreed upon Fees for other services
information request list Fees for other services reflect those agreed at the time of issuing our Audit Plan. Any changes will
 The scope of the audit, and the Council and be reported in our Audit Findings Report and Annual Audit Letter.
its activities, have not changed significantly
 The Council will make available management Independence and ethics
and accounting staff to help us locate We confirm that there are no significant facts or matters that impact on our independence as
information and to provide explanations auditors that we are required or wish to draw to your attention. We have complied with the Auditing
Practices Board's Ethical Standards and therefore we confirm that we are independent and are able
Grant certification
to express an objective opinion on the financial statements.
 Our fees for grant certification cover only
Full details of all fees charged for audit and non-audit services will be included in our Audit Findings
housing benefit subsidy certification, which
report at the conclusion of the audit.
falls under the remit of Public Sector Audit
Appointments Limited, as the successor to We confirm that we have implemented policies and procedures to meet the requirement of the
the Audit Commission in this area Auditing Practices Board's Ethical Standards.
 Fees in respect of other grant work, such as
reasonable assurance reports, are shown
under "Fees for other services".

177
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
17
Manchester City Council Item 10
Audit Committee 11 June 2015

Communication of audit matters with those charged with governance

International Standards on Auditing (ISA) 260, as well as other ISAs, prescribe matters which we are required to communicate with those
charged with governance, and which we set out in the table on the following page.
This document, The Audit Plan, outlines our audit strategy and plan to deliver the audit, while The Audit Findings will be issued prior to
approval of the financial statements and will present key issues and other matters arising from the audit, together with an explanation as to
how these have been resolved.
We will communicate any adverse or unexpected findings affecting the audit on a timely basis, either informally or via a report to the
Council.

Respective responsibilities
This plan has been prepared in the context of the Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit
Commission (www.audit-commission.gov.uk).
We have been appointed as the Council's independent external auditors by the Audit Commission, the body responsible for appointing
external auditors to local public bodies in England. As external auditors, we have a broad remit covering finance and governance matters.
Our annual work programme is set in accordance with the Code of Audit Practice ("the Code") issued by the Audit Commission and
includes nationally prescribed and locally determined work. Our work considers the Council's key risks when reaching our conclusions
under the Code.
It is the responsibility of the Council to ensure that proper arrangements are in place for the conduct of its business, and that public money
is safeguarded and properly accounted for. We have considered how the Council is fulfilling these responsibilities.

178
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
18
Manchester City Council Item 10
Audit Committee 11 June 2015

Communication of audit matters with those charged with governance


(continued)
Audit
Our communication plan Audit plan findings
Respective responsibilities of auditor and management/those charged with governance 
Overview of the planned scope and timing of the audit. Form, timing and expected general content of 
communications
Views about the qualitative aspects of the entity's accounting and financial reporting practices, 
significant matters and issue arising during the audit and written representations that have been sought
Confirmation of independence and objectivity  
A statement that we have complied with relevant ethical requirements regarding independence,  
relationships and other matters which might be thought to bear on independence.
Details of non-audit work performed by Grant Thornton UK LLP and network firms, together with fees
charged.
Details of safeguards applied to threats to independence
Material weaknesses in internal control identified during the audit 
Identification or suspicion of fraud involving management and/or others which results in material 
misstatement of the financial statements
Non-compliance with laws and regulations 
Expected modifications to the auditor's report, or emphasis of matter 
Uncorrected misstatements 
Significant matters arising in connection with related parties 
Significant matters in relation to going concern 

179
© 2015 Grant Thornton UK LLP Manchester City Council Audit Plan
19
Manchester City Council Item 10
Audit Committee 11 June 2015

© 2015 Grant Thornton UK LLP. All rights reserved.


'Grant Thornton' refers to the brand under which the Grant Thornton member
firms provide assurance, tax and advisory services to their clients and/or refers to
one or more member firms, as the context requires.
Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd
(GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and
each member firm is a separate legal entity. Services are delivered by the
member firms. GTIL does not provide services to clients. GTIL and its member
firms are not agents of, and do not obligate, one another and are not liable for
one another's acts or omissions.
grant.thornton.co.uk

180

You might also like