NIAO Transparency Report 2021-22

Introduction

This report is designed to provide the reader with background information about the role of the Comptroller and Auditor General (C&AG), and the Northern Ireland Audit Office (NIAO / the Office) and the work that it undertakes.  Unlike private sector audit firms, there is no requirement for the Northern Ireland Audit Office to publish a transparency report however, as outlined in our values, ‘we wish to build open positive relationships based on trust and respect’. We are committed, therefore, to demonstrating the principle of transparency in all that we do.

Part one of this report provides information about our role, our governance arrangements and the impact of our work.

Part two provides information relating to our audit independence and quality.

Part One: About the NIAO

NIAO, through its financial and public reporting work, seeks to hold public bodies to account for the way they spend public money. It does this by providing objective information, advice and assurance on how public funds have been used, and encouraging best standards in financial management, good governance and propriety in the conduct of public business.

Comptroller and Auditor General

The C&AG is head of the NIAO and a Crown appointment made on the nomination of the Northern Ireland Assembly (the Assembly).

Under the Audit (Northern Ireland) Order 1987, the holder of the office is a Corporation Sole, and responsible for the appointment of NIAO staff who assist them in the delivery of their statutory functions.  They have complete discretion in the discharge of their statutory audit functions, with responsibility for the programme of audit work, all audit opinions and judgements resting with them alone. Both the C&AG and their staff are totally independent of government.

The C&AG’s main duties are carried out on behalf of the Assembly and they work in close association with the Assembly’s Public Accounts Committee (PAC).  The PAC’s investigations on Northern Ireland matters are based on the C&AG’s reports and the C&AG takes into account any proposals from the Committee when they decide the programme of examinations their staff should undertake.

Governance

The C&AG, as Accounting Officer for the NIAO, is accountable to the Assembly and the public for operating the NIAO and how the Office uses public money.  

As a corporation sole and head of the NIAO, the C&AG has primacy in determining the strategy, staffing and structure of the Office and accordingly is responsible for designing and implementing internal governance arrangements to support them in the delivery of their functions.  In fulfilling his role, the C&AG is supported by a Chief Operating Officer and Senior Management Team, an Advisory Board and its sub committees, and an internal audit service operating to Public Sector Internal Audit Standards.

The internal governance arrangements of the NIAO established by the C&AG are set out in Appendix one and a ‘Memorandum of Understanding on the Governance and Accountability Arrangements of the Northern Ireland Audit Office’ (MOU) agreed between the Northern Ireland Assembly Audit Committee and the NIAO.

Organisational Structure

The Office’s structure comprises six directorates, all of which have a portfolio of operational audit work. One of the directorates also provides corporate support, covering activities such as HR, finance, ICT and accommodation. This structure is designed to:

• provide flexibility and agility to balance workflow and meet peaks in activity, and reduce reliance on temporary appointments;
• enhance knowledge and skills sharing;
• create a strong client focus;
• enhance team work and build stronger staff networks;
• provide opportunities for career development, as well as job enrichment; and
• provide autonomy in decision-making.

 

Our role

The NIAO scrutinises public spending in Northern Ireland. Our audit remit covers both the central and local government sectors.

The C&AG is the external auditor of Northern Ireland departments, executive agencies and other central government bodies, including non-departmental public bodies and health and social care bodies. The C&AG has extensive rights of access to information held by a wide range of public sector organisations, and their inspection rights extend to the records of contractors and those who receive public money.  The results of the C&AG’s work are reported to the Assembly.

In addition, a senior member of NIAO staff is designated as the local government auditor by the Department for Communities with the consent of the C&AG and, assisted by NIAO staff, is responsible for the audit of Northern Ireland’s councils and associated local government bodies. The results of this work are reported to the Department for Communities. 

By reporting the results of our audits to the Assembly, government departments and bodies are held to account for how they use public money, thereby safeguarding taxpayers’ interests. Our work also aims to help public service managers improve performance and service provision.

Financial audit work undertaken by the Office comprises the audit of central and local government body accounts. We audit the financial statements of nearly all central government organisations and report on them to the Assembly. We also audit the financial statements for local government bodies in Northern Ireland. The purpose of our financial audit is to provide independent assurance that the accounts of an audited body give a true and fair view of its financial position, have been prepared in accordance with the relevant accounting requirements and, where relevant, that the transactions underlying the financial statements are in line with the intentions of the Assembly and other authorities. Where there are significant issues arising, we make a report to the Assembly which can be considered by PAC. We inform the organisations we audit of issues we find during our work, giving our independent view on areas where the audited body could improve its governance, controls and financial management.

During 2021-22 we certified 112 central government accounts and 16 local government accounts.

In relation to public reporting, during 2021-22 we published eleven Local Government annual improvement reports, six Value for Money (VFM) reports; two response studies on the Northern Ireland budget process and the Sports Sustainability Fund; two good practice guides on fraud risk; one general report; and a policing continuous improvement arrangements report. In addition, we published a second report on the Executive’s response to the Covid-19 pandemic and a report on the progress that has been achieved towards the implementation of the Renewable Heat Inquiry recommendations.

Impact of our work

We have a responsibility to provide value for money on the services we provide to our stakeholders.  One way in which we do this is by identifying the quantifiable financial impact of our work.  In doing so, we recognise our measurement of impact will only present a partial picture as it is hard to quantify the deterrent effect of public audit in contributing to improved public services.

During 2021-22, quantitative financial impacts of £7.7 million were achieved as a result of the work of the Office (2020-21: £53.98 million). This figure has been independently validated by the Office’s External Auditor and represents 1.05 times the net resource outturn of the Office (2020-21: 8.2 times). The extent of savings achieved can fluctuate from year to year and is largely dependent on the nature of the studies undertaken. 

Finances

The Audit (Northern Ireland) Order 1987 requires the C&AG to prepare a Supply Estimate each financial year. The Audit Committee of the Assembly examines our budget proposals, agrees the annual Supply Estimate with the C&AG, and lays the Supply Estimate before the Assembly for approval.

The Northern Ireland Assembly Audit Committee approved the NIAO budget proposal for 2021-22 on 14 December 2020. The Budget Act (Northern Ireland) 2021, which provided the authority for a Vote on Account to provide cash and resources for the initial months of the 2021-22 financial year, was approved by the Northern Ireland Assembly and enacted on 23 March 2021. The Budget (No. 2) Act (Northern Ireland) 2021, which provided the 2021-22 Main Estimates, was approved by the Northern Ireland Assembly and enacted on 4 August 2021.

NIAO’s activities are funded through direct funding from the Northern Ireland Consolidated Fund and fees for audit work. Our full financial information, including a detailed remuneration and staff report, is contained in our 2021-22 Annual Report and Accounts.

 

 

Part Two: Audit independence and quality

The quality of work of the NIAO is fundamental and therefore quality control is built into every aspect of it.

NIAO’s quality control processes have been developed to meet the requirements of the International Standard on Quality Control (UK) (ISQC1), ‘Quality Control For Firms That Perform Audits And Reviews Of Financial Statements, And Other Assurance And Related Service Engagements’.

ISQC1 requirements are primarily relevant to NIAO’s financial audit work. The NIAO ‘Value for Money Standards’ handbook applies to the Office’s VFM work. 

The NIAO’s quality framework is set out in the policy document ‘Quality Control in the Northern Ireland Audit Office’.

Leadership

Ultimate responsibility for the NIAO’s system of quality control rests with the C&AG.  The Chief Operating officer is responsible for overseeing the design and implementation of quality assurance arrangements, and all staff have a responsibility to deliver quality audit work.

NIAO ensures that audit firms who support the Office by carrying out audit or other specific assignments on its behalf on a contractual basis also have policies in place in respect of ISQC 1 quality control arrangements.

Independence

For our work to have the impact and influence required, we must uphold high ethical standards. This underlines the need for the C&AG’s staff to be objective and impartial in all their work, including accurate, fair and balanced reporting.

NIAO expects staff to adhere to the relevant internal and external quality standards for its work. This includes International Standards on Auditing (ISAs) (UK), our VFM standards, professional ethics, and ISQC1. Ensuring compliance with the standards and creating a culture of professionalism, rigour and openness to challenge is the responsibility of the Compliance/Ethics Partner. The Chief Operating Officer is NIAO’s Compliance/Ethics Partner.

All staff undergo training to ensure that they understand the ethical and professional standards to which they must adhere. The NIAO Code of Conduct outlines the principles staff must observe in undertaking their NIAO audit work including:

• • integrity;
  • objectivity;
  • professional competence and due care;
  • confidentiality; and
  • professional behaviour.

The Code of Conduct states that staff have a duty to declare any private interests relating to their public duties and to take steps to resolve conflicts arising in a way which protects the public interest.

All staff provide an annual Code of Conduct return confirming that they have understood and complied with the Code of Conduct provisions, declaring any external interests or activities which might potentially conflict with their position or work at NIAO.

There are strong safeguards against threats to our independence. The C&AG’s independence is enshrined in statute and he is appointed to the vast majority of audits (including VFM) by statute.

Conflicts of interest can arise as a result of over-familiarity which can present a risk to compliance with the ethical standard. To safeguard against this, we have a policy of rotating staff. It is our policy for engagement directors and engagement managers to continue with a specific client or engagement to the fifth year of association (inclusive), unless there are any identified threats to their or the C&AG’s objectivity or perceived loss of independence that cannot be properly mitigated. In years six and seven the presumption is that engagement directors and engagement managers will be rotated due to length of association alone unless there are overriding operational reasons for them to remain in place.  No engagement director or engagement manager will act as part of an engagement team for a period of more than seven years in any twelve year period.  Once rotated, relevant individuals should have no further involvement in work relating to the client for a further five years. 

Where the role of engagement director is delegated, the same rotation policy applies to the individual undertaking the role. All other staff will be rotated regularly to ensure that they have experience across audit clients.  No member of staff should work on a particular engagement for a period of more than seven years within any twelve year period.

The timing of any staff rotation is always carefully considered to ensure that continuity to each assignment is maintained as much as possible.

Any firms contracted to undertake financial audit work on behalf of NIAO also rotate staff in line with our policy.

Our people

The training and development of all staff is vital in maintaining and developing the required capabilities and competence necessary to undertake our work. The Office develops the capabilities and competence of its staff through a combination of structured and unstructured training, work experience and mentoring.

The NIAO’s core skills is that of an auditing organisation. A large majority of staff are members of, or trainees with, the main accountancy institutes, allowing the NIAO to meet the professional standards required of all financial auditors. This base is supplemented by other staff with relevant professional skills and by contractual partnerships with private firms. Our trainee accountants follow clearly defined development paths to gain the necessary experience. The professional accountancy training for staff is supplemented by in-house training in both financial and VFM work.

All staff are expected to undertake continuing professional development (CPD) and to take responsibility for updating their knowledge as well as ensuring that they comply with the requirements of their respective professional institutes, where applicable.  Audit staff are expected to attend technical update courses, as provided, and all staff are provided with an internal annual training programme and a variety of external training courses to meet their CPD and to suit the competency requirements of their area of work.

Quality is at the centre of not only our recruitment procedures, but also is maintained through our learning and development strategy and our performance assessment system.

Engagement performance

It is of the ultimate importance to the C&AG that all NIAO staff deliver a quality audit that complies with legal and regulatory requirements and professional standards. The NIAO has established procedures to ensure that audit engagements are performed to the standards expected. In financial audit this is through the Financial Audit Manual methodology and for VFM audit through the VFM Standards methodology.

Public Reporting: Value for Money

The NIAO expects staff to adhere to internal quality standards set for VFM work. The NIAO’s VFM Standards handbook sets out the main mandatory standards that all VFM studies must meet, together with guidance on current approaches to implementing the standards. It is supplemented by additional policy guidance relating to specific aspects of VFM work.

NIAO VFM studies are subjected to a range of formal internal quality assurance checks in order to maintain and improve the quality of the published reports.

Financial Audit

NIAO’s financial audit work complies with ISAs (UK). NIAO engages with the other UK public audit bodies and with private sector firms contracted to the NIAO. This helps to share good practice and learn from other practitioners.

NIAO’s audit methodology is outlined in the Financial Audit Manual, the main reference source for audit policy and guidance. All financial audits are documented using a specifically tailored computer software package which provides standardisation of audit tests and working papers that reflect NIAO audit policy and methodology. It also records the timing and extent of internal review undertaken. This package, along with the Financial Audit Manual, supports our financial auditors in auditing in a professional, diligent and independent way.

Internal review

Overall responsibility for engagement performance and quality rests with the engagement director assigned to each audit. Quality control is built into all stages of the financial audit to ensure that work is of high quality and that it complies with auditing standards. For the vast majority of audits, there are two review stages:

• first stage review: a detailed review of all working papers and audit procedures by another team member with more seniority than the preparer, usually the engagement manager to confirm that sufficient appropriate audit evidence has been obtained to support the audit conclusion and recommended audit opinions; and
• second stage review: an overall review undertaken by the engagement director which covers the major issues of judgement.

The Office has in place a process for delegating audits assessed as being lower risk and lower complexity.  These audits have only one combined single stage review which covers all elements of both the standard first and second stage review.  This is conducted by the delegated engagement director. 

Technical and Specialist advice

Where an engagement director identifies a significant matter that requires professional judgement, they may consult with peers and/or the Office’s designated Technical Director before deciding the appropriate response. During the year a range of technical guidance was issued and a wide range of advice provided on key audit or accounting issues. In total, eighteen audits with significant matters of judgement were referred to the Technical Director during 2021-22. Arising from these, the C&AG’s opinions on eleven accounts were qualified (some accounts received more than one qualification) and a further two opinions were modified (but not qualified). 

 

 

Engagement Quality Control Review

A further peer review, known as an Engagement Quality Control Review (EQCR), may be completed by an independent director before certification. EQCRs focus on the key areas of professional judgement for those audits where there is a particular sensitivity or significant risk to the C&AG and to the NIAO. For example, an EQCR will be completed if it is likely the C&AG will provide a new qualified audit opinion or report on the accounts, or if the engagement director identifies significant or difficult judgements that may affect the C&AG’s audit opinion. Seven financial audits were subject to EQCR in 2021-22.

Private firms undertaking financial audit work for the NIAO

In financial terms around 30 per cent of our financial audit work is contracted out to private sector firms. However, the C&AG retains responsible for signing the audit certificates for all contracted out audits. The quality of services offered by firms is assessed as part of the tendering process and is a key factor in the contract award decision.

Contractor performance and quality is subsequently assessed by the following means:

• Review of key contractor audit documentation: a work programme has been developed to facilitate the review of key contractor audit documentation by NIAO engagement teams throughout the audit process, including proposed audit plans, partner confirmations and audit findings.

• Pre-certification reviews of contractor files: depending on the contract year and the level of risk for each audit engagement, NIAO engagement teams complete a pre-certification file review of contractor audit files. As a minimum, NIAO engagement teams perform a pre-certification file review of at least one contractor audit file in the first year of contract award.
• Quality control review by the NIAO engagement team: each year the NIAO director with overall responsibility for contracted out audits selects a sample of audits for cold file review by the NIAO engagement managers and engagement directors with responsibility for the statutory audits.

In addition, one of the key performance indicators (KPIs) developed for contracted out audits is that contracted out audit files are subject to the quality assurance monitoring procedures established by each contractor, with one audit per contract cold file reviewed by the contractor each year.

• Contract management arrangements: Engagement managers assess contractors’ performance against KPIs, and at the end of each quarter contractors provide performance monitoring reports against the KPIs. The NIAO contract manager compares the contractors’ scores against those awarded by engagement managers and seeks further information where differences are noted or poor performance has been recorded.

Contractors also attend performance review meetings twice a year with the NIAO contract manager and director with overall responsibility for contracted out audits.

Quality Monitoring - Public Reporting: Value for Money

After publication, NIAO’s VFM reports are assessed by a panel of external specialists who rate the report on a number of areas including presentation, technical content and quality of recommendations. During 2021-22 nine published reports were assessed by an external review panel, with an average rating of 7.7 on a scale of 1 to 10, with 10 representing outstanding (2020-21: average of 7.4). 

In addition to formal quality assurance procedures, study teams carry out an internal lessons learned review shortly after a report is published to allow us to capture learning from work and disseminate findings to staff.

Quality Monitoring - Financial Audit

The NIAO undertakes an annual financial audit quality assurance programme. NIAO’s Technical Team coordinates the programme to ensure all financial audit engagement directors are reviewed on a cyclical basis.

In 2021-22 the review programme was externally provided by the Institute of Chartered Accountants in England and Wales (ICAEW). In line with good practice, this made the monitoring arrangements completely independent.

A representative sample of three audit files, certified between November 2020 and October 2021, was selected by ICAEW and the cold review process commenced in December 2021.

ICAEW rated the three financial audit files reviewed as ‘generally acceptable`[1] and also noted areas of good practice. Training, guidance and revised methodology has subsequently been developed to address areas for improvement identified.

ICAEW’s findings, along with our responses to address each, were reported to all staff in May 2022. All financial audit staff were given time to consider ICAEW’s findings and engagement managers were asked to discuss how to implement recommendations for their audit engagements at team meetings. In the interest of transparency, ICAEW’s executive summary of the 2021 quality assurance review was published on the NIAO website in May 2022.

In addition, two further follow up reviews were undertaken for audit files rated as ‘improvements required’ as part of the 2020 cold file review. These additional reviews only considered whether significant issues previously identified had been adequately addressed and rectified in the subsequent year’s audit. The outcome of these reviews concluded that prior year significant issues had been substantially addressed.