Bucks Fire & Rescue Service - Internal Audit Report

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 11

and Recommendations

Appendix B List of Staff Consulted 13

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

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1 Details of Audit

The audit review of Bucks Fire & Rescue Service - Core Financial Controls
formed part of the agreed audit 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”. This 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.
• 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 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
the audit opinion is adequate. It was found that the Service is 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 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.

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• 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.

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4 Background

The Fire Authority’s headquarters are in Aylesbury, roughly at the centre of the
area 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 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 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 17,477,160
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: 27/4/05

Overall last audit opinion: POOR
Number of recommendations agreed High 8
with Management last audit: (Total) Medium 11
Low 4
Follow Up: Number of High 7/8
recommendations implemented by Medium 1/1
Management since last audit: Low 0/0
(Financial Control Issues Only)

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

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5 Recommendations and Action Plan

Findings and Recommendation Priority Management Response

Consequences and Action Plan
Ordering
1 We reviewed a sample of Consideration should be HIGH Response:
purchases and confirmed given to expanding the A project group has been set
that for each payment ordering system to ensure up to introduce commitment
within our sample a that all purchases across accounting in R3 in SAP.
number of corresponding the Service are purchased This will be a detailed and
orders had not been in a consistent manner. long term project and is
raised or attached to the A revised control framework expected to be implemented
invoice. Some items did for ordering will need to be during the 2006/07 financial
not have purchase orders developed. Internal Audit year.
but the control function are willing to provide
has historically been assistance in this area but
based on the payment the framework will be
element not in ordering. dependent on the modules Who to be actioned by:
Whilst the payment of the SAP system Raff Stuart
function facilitates easier implemented and the extent When to be actioned by:
control, it is actually the to which commitment 31.03.2007
ordering process which accounting will be
formally commits the implemented.
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;
• 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.

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Findings and
Consequences
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
• 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.
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 value 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.
File Ref: Aplog Ref: 06/79
Recommendation
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.
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.
6
Priority Management Response
and Action Plan
MEDIUM Response:
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:
31st March 2007
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. 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
Draft Report – 14/12/2005
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Findings and
Consequences
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.
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: Aplog Ref: 06/79
Recommendation
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.
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.
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 re-
aligned as soon as
possible;
• Formal procedures are
developed to document
the monthly process
from meetings with
budget holders through
to reporting to
7
Priority Management Response
and Action Plan
HIGH Response:
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:
31st March 2006
HIGH
:
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:
Draft Report – 14/12/2005
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Findings and Recommendation Priority Management Response

Consequences
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 mis-
alignment.
Financial commentaries
are included in the
reporting packs for
significant items (for
example salaries,
transport, supplies and
services etc.).
and Action Plan
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
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
HIGH Response:
The financial instructions
and regulations were
approved by the F & GP
committee on 29th
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.

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Findings and Recommendation Priority Management Response

Consequences and Action Plan
defined within the this area.
Financial Instructions and In addition a training session
Financial Regulations to has been organised for all
ensure that a consistent senior officers to raise
approach was developed awareness of these
to manage identified documents and their
risks. The Financial importance throughout the
Instructions and Financial Brigade.
Regulations examined as
being in force could not Who to be actioned by:
be assured as being Already actioned
approved by committee. When to be actioned by:
The risk of uncertainty
and unclear financial
regulation is therefore
unnecessarily increased.

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 That all asset registers and HIGH Response:
operational equipment, IT inventories be consolidated
and other equipment to aid and facilitate effective The main assets capitalised
provided evidence of operational performance on the balance sheet are
asset registers being delivery and allow for kept in detail by the Finance
utilised to keep track of accurate accounting of all Section with the exception of
equipment held by the assets. Plant and Equipment. A
Authority. This was business case is currently
broken down by being made for an asset
categories and locations Management and tracking
and did not provide a system for monitoring and
comprehensive guide of tracking these items. The
all equipment suitable for Authority will give
capitalisation recording consideration to removing
and reporting purposes. the purchase of equipment
The lack of a single from the capital budget thus
comprehensive register negating the need for a
that could be effectively detailed list of equipment
backed up, could lead to and for operations to inform
the loss of crucial finance when items are
information due to disposed of.
accidental or deliberate
damage. Who to be actioned by:
Alan Riddet
There could therefore be When to be actioned by:
a risk of inappropriate Ongoing
decisions as a result of
misinformation and a lack

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Findings and Recommendation Priority Management Response

Consequences and Action Plan
of operational
accountability and
effectiveness due to
incomplete consolidated
information.
Control Accounts & General Ledger
8 Our testing confirmed that Month end journals should HIGH Response:
established routines be approved by an
provide adequate appropriate second officer This is agreed and will be
segregation of duties and a more rigorous month- implemented. Journals will
within the creditors and end reporting procedure be not be input until they have
journal input system. implemented. been authorised by a second
However, we did note officer.
that inconsistent practices
do exist as month end Who to be actioned by:
journals are not
authorised by a second Jacki Watkinson
officer. Whilst we Diane Ward
identified that an informal
check is undertaken, this When to be actioned by:
does not provide an
adequate management With immediate effect
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.

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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 meet them. This is determined by an evaluation of actual
procedures against expected key controls.

Control Objective Fully Partly Not met

met met
1 Payroll expenditure is made only in respect of 
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

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 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

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Control Objective Fully Partly Not met

met 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
0

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Appendix B

Discussion took place with the following staff

Name Position Location
Sue Watson Group Manager – Finance Brigade HQ
Policy

Jacki Watkinson Area Manager – Finance Brigade HQ

Raff Stuart Assistant Director – Brigade HQ

Finance

Eddie Hunt Station Manager – Brigade HQ

Technical Services

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