Prudential Framework Audit Perspective Risk Based Audit Approach

1
Prudential Framework Audit Perspective Risk
Based Audit Approach
Pearl Tate Senior Audit Manager, Audit Scotland
2
Outline of the session

• Prudential Framework - Risk Based Audit
• Impact of the Prudential Code
• Audit Approach
• Initial Findings
• Wider Considerations
• Key Challenges

3
Prudential Code

• Greater freedom to incur capital expenditure
• Best Value requirements
• Around 15 billion of assets across Scotland
• Part of normal audit duties

4
The audit process

• We believe our overall purpose is to hold local
  government to account by using the independent
  audit process to
• Give assurance on probity, stewardship and
  financial management
• Encourage continuous improvement
• Promote the economic, efficient and effective use
  of resources
• Secure the fair and lucid presentation of
  financial and performance information
• Accounts Commission Strategy 2005-08

5
The code of audit practice

• Sets out auditors objectives as being to
  consider assess the authoritys
• Financial statements
• Corporate governance arrangements as they relate
  to the system of internal control, the prevention
  detection of fraud, irregularity corruption,
  standards of conduct the financial position
• Arrangements to manage performance, secure EEE,
  compliance with BV requirements publish PIs

6
Respective responsibilities

• Local authorities have primary responsibility for
  having adequate arrangements in place to ensure
  compliance with the Prudential Code
• External auditors are responsible for assessing
  these arrangements reporting where they
  consider there to be areas for improvement

7
Audit Approach

• Audit objectives are to assess
• Extent of implementation of the Code
• Reasonableness of assumptions supporting
  evidence
• Application of changes to accounting practice
• Integration into policy setting financial
  planning
• Transparency of decisions

8
What were we looking for?

• Estimates were sensibly compiled
• The process was transparent
• Indicators were subject to appropriate review
  scrutiny
• Adequate monitoring procedures throughout the
  year were in place

9
2004/05 Findings

• Calculations accurate, with documentation to
  allow replication in future
• Governance framework to agree and report
  indicators
• Policy awareness additional freedom, link
  between cap decisions revenue consequences
• Option appraisal recognition
• Estimates detail outline, some link to MTFS
  and capital strategy
• Risk management

10
Looking forward

• Real understanding of needs capital programme,
  service plans, existing assets
• Risk management formal process, professional
  assessment, assessment of unusual investment
  vehicles, debt restructuring
• Option appraisal - development

11
Further Developments

• Vision strategy for long-term delivery
• Depreciation clear policy, recognition of whole
  life costs
• Planning horizons longer term, capital strategy
• Governance options for devolving responsibility
  to services

12
Wider Considerations

• AMP audit objectives are to assess
• Extent of good asset management planning practice
• Importance assigned at a corporate level
• Quality of baseline data
• Integration into policy setting financial
  planning
• Transparency of decisions

13
Asset management planning

• Key questions
• What is the composition, nature value of the
  estate?
• How is it being managed?
• What are the plans for the future?
• Are the strategies affordable?
• How will the AMP be implemented in practice?

14
Audit Findings

• Schools Estate Management plans (dynamic?)
• Service Asset Management plans
• Asset Managers
• Software
• Identification and assessment of asset base
• Performance Indicators

15
Capital projects

• The planning delivery of capital investment.
  Audit objectives are to
• Assess the extent of good capital planning
  practice
• Ensure systems processes are in place for
  selection development of capital projects

16
Key challenges

• Self regulation
• No one prescriptive method to implementation
• Review of capital expenditure classification
• Iterative nature of implementation
• Links to financial strategies, capital
  strategies, treasury strategies, AMPs, option
  appraisal