Model Internal Audit Assignment Report

MINISRY OF ANYTHING

INTERNAL AUDIT REPORT (DRAFT)

TREASURY MANAGEMENT (8.00/01)

Distribution:

Manager A - for informationManager B - for comment

DECEMBER 2001

MINISRY OF ANYTHING

INTERNAL AUDIT REPORT

TREASURY MANAGEMENT

CONTENTS

SECTION PAGE

1. Introduction 1

2. Executive Summary 2

3. Findings and Recommendations 3

Appendix A Internal Audit Methodology 5

Appendix B Action Plan of Agreed Recommendations 6

ASSIGNMENT CONTROL:

Draft report issued: November 2001 Days planned: 15 Auditor: Francis Dark

Final report issued: December 2001 Days taken: 15 Supervisor: Allan Wight

Cost of audit: £2,100

Ministry of Anything 8.00/01 Treasury Management

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TREASURY MANAGEMENT

1. INTRODUCTION

Background

1.1 We reviewed the system of Treasury Management during November 2000 as part of our 2000/01 internal audit plan.

1.2 The Ministry has outstanding debts of approximately £3.2 million paying interest rates of between 6.875% and 15.875%. It also has investments of over £0.75 million gaining interest at rates of between 5% and 7.2%. The annual budget indicates that interest payable in 1999/00 will be nearly £250,000 and interest received will be £34,000.

Audit Objectives

1.3 The objective of our review was to assess whether existing controls should provide reasonable assurance that the following control objectives are being achieved:

that appropriate cash flow projections are developed and adequate management information is generated in respect of past and future income and expenditure

banking arrangements and facilities are appropriate and adequately controlled

all suitable loans and investment opportunities are identified and evaluated

treasury management is undertaken in such a way that the Ministry's short and long term interests are balanced and safeguarded

Acknowledgement

1.4 We would like to thank the following staff for their time and co-operation:

Name Position

Judy Jones Accountancy Services Manager

Sally Smith Accountant

Brian Brown Accountancy Assistant

Ministry of Anything 8.00/01 Treasury Management Page 1

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TREASURY MANAGEMENT

2 EXECUTIVE SUMMARY

2.1 Overall conclusion

In most areas we consider that the current controls are adequate. However, we consider that changes need to be made to ensure that bank reconciliations act as an effective control over the accuracy of the Ministry's financial records.

For this reason we consider that controls within the system should provide substantial assurance that risks material to the achievement of system objectives are adequately managed.

See Appendix A Paragraph 4, for an explanation of this opinion.

2.2 Control objective: to ensure that appropriate cash flow projections are developed and adequate management information is generated in respect of past and future income and expenditure

We consider that current controls should provide adequate assurance that this control objective should be achieved.

2.3 Control objective: to ensure that banking arrangements and facilities are appropriate and adequately controlled

We consider that, whilst the current controls are not inadequate, a number of improvements could be introduced to ensure that further assurance is provided and especially to ensure that bank reconciliations act as an effective control.

2.4 Control objective: to ensure that all suitable loans and investment opportunities are identified and evaluated


2.5 Control objective: to ensure that treasury management is undertaken in such a way that the Associations short and long term interests are balanced and safeguarded



3. FINDINGS AND RECOMMENDATIONS

We have provided an explanation of our reporting methodology at Appendix A.

3.1 Control objective: to ensure that that appropriate cash flow projections are developed and adequate management information is generated in respect of past and future income and expenditure

Findings Implications Recommendations Priority

3.1.1

The Finance Manager posts a range of banking transactions and the Finance Officer undertakes the bank reconciliations each month

The bank reconciliations do not act as a clear check on the accounting for cash and bank transactions

The Finance Manager should undertake the monthly bank reconciliations and these should be reviewed, initialled and dated by the Chief Executive

Significant

3.1.2

The Finance Officer takes the cash bankings to the Co-operative Bank in the centre of Nottingham three days a week

The Finance Officer spends a significant length of time undertaking the bankings for the Association

Consideration should be given to alternative methods of undertaking the bankings

Advisable

3.1.3

Committee members may not be available to sign cheques as required

Cheques with a value of less than 5,000 should not be signed by Members, two members of staff should be sufficient

Advisable


3.2 Control objective: to ensure that banking arrangements and facilities are appropriate and adequately controlled

Findings Implications Recommendations Priority

3.2.1 The Finance Manager posts a range of banking transactions and the Finance Officer undertakes the bank reconciliations each month

The bank reconciliations do not act as a clear check on the accounting for cash and bank transactions

The Finance Manager should undertake the monthly bank reconciliations and these should be reviewed, initialled and dated by the Chief Executive

Significant

3.2.2 The Finance Officer takes the cash bankings to the Co-operative Bank in the centre of Nottingham three days a week

The Finance Officer spends a significant length of time undertaking the bankings for the Association

Consideration should be given to alternative methods of undertaking the bankings

Advisable

3.2.3 The Finance Officer takes the cash bankings to the Co-operative Bank in the centre of Nottingham three days a week

Committee members may not be available to sign cheques as required

Cheques with a value of less than 5,000 should not be signed by Members, two members of staff should be sufficient

Essential


APPENDIX A

METHODOLOGY

1. We performed this audit using systems auditing methodology. We identified the objectives of the system and control objectives in advance, and agreed these with the appropriate manager. Following interviews with relevant managers and staff, we identified and evaluated the existing controls against the controls we consider necessary to achieve each control objective. From this work we decided the level of testing required. We then used our control evaluation and the results of our testing to form an opinion on the overall effectiveness of the internal control system.

2. Where we do not consider that a control objective is being efficiently achieved we have made recommendations that, if implemented, should ensure that the control objective is realised in future.

3. To assist management in the pursuit of value for money we have also drawn attention to points, identified during the review, which should help to improve the economic, efficient and effective use of the Ministries resources.

4. As a result of the above work we formed an overall opinion on the extent that existing controls should provide adequate assurance that all significant risks to the achievement of the system’s objectives are being effectively managed. We then graded the control system of the basis of the following scale:

a) controls within the system should provide full assurance that risks material to the achievement of system objectives are adequately managed

b) controls within the system should provide substantial assurance that risks material to the achievement of system objectives are adequately managed

c) controls within the system should provide limited assurance that risks material to the achievement of system objectives are adequately managed

d) controls within the system should provide little assurance that risks material to the achievement of system objectives are adequately managed.

5. In the third section of this report, on Findings and Recommendations, we have operated a system of exception reporting. We have only referred to a control objective if we do not consider that existing controls should provide reasonable assurance that the objective will be achieved efficiently.

6. We have assigned each of our recommendations to one of the following priorities:

Essential - action that we consider is imperative to ensure that the organisation is not exposed to high risks

Significant - action that we consider is necessary to avoid exposure to significant risks

Advisable - action that we consider is desirable and should result in enhanced control or better value for money.

7. We view risk as the chance, or probability, of one or more the Ministry's objectives not being achieved. Risk refers both to unwanted outcomes that might arise, and to the potential failure to achieve desired results.


APPENDIX BACTION PLAN

We consider that the following recommendations are necessary to avoid, or reduce, the risks we have identified. Where managers have agreed to implement these recommendations, they consider that the benefits will outweigh the costs of introducing the controls and that other, more cost effective, controls are not available.

Para.No.

Recommendation Priority Management Comment Implementation date

Manager Responsible

3.2.3 Cheques with a value of less than 5,000 should not be signed by Members, two members of staff should be sufficient

Essential

3.1.1 The Finance Manager should undertake the monthly bank reconciliations and these should be reviewed, initialled and dated by the Chief Executive

Significant

3.21 The Finance Manager should undertake the monthly bank reconciliations and these should be reviewed, initialled and dated by the Chief Executive

Significant

3.3.2 References should be kept, this needs to be documented in procedures

Significant

3.1.2 Consideration should be given to alternative methods of undertaking the bankings

Advisable

3.2.2 Consideration should be given to alternative methods of undertaking the bankings

Advisable


Model Internal Audit Assignment Report

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