Background
The Code of Audit Practice (the Code) requires appointed auditors to issue a conclusion on whether the audited body has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. This is known as the value for money (VFM) conclusion.
In response to changes in the economic environment in which the Audit Commission (the Commission) and its audited bodies operate, the Commission introduced a new approach to auditors’ local VFM work from 2010/11.
Value for money conclusion based on ‘specified reporting criteria’
Appointed auditors of the following types of bodies are required to give their statutory VFM conclusion based on reporting criteria specified by the Commission:
- NHS trusts
- primary care trusts
- single-tier and county councils
- district councils
- police authorities*
- fire and rescue authorities**
- the Greater London Authority
- the London Development Agency
- Transport for London
*Police authorities outside London will be abolished in November 2012, as set out in the Police Reform and Social Responsibility Act. Auditors will therefore give their 2011/12 VFM conclusion based on the key risks associated with the abolition of the police authority and the transfer of its functions. These risks will, however, include relevant aspects of the specified reporting criteria as the police authority functions will be transferred to a successor body.
**A separate VFM conclusion is not required for county fire and rescue services, as they are covered by the auditor's VFM conclusion for the county council.
Specified criteria for the auditor's VFM conclusion:
For 2011/12, auditors of the bodies listed above will give their statutory VFM conclusion based on the following two reporting criteria, as specified by the Commission.
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Specified criteria for the auditor’s VFM conclusion:
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The organisation has proper arrangements in place for securing financial resilience.
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The organisation has proper arrangements for challenging how it secures economy, efficiency and effectiveness.
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Focus of the criteria:
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The organisation has robust systems and processes to manage effectively financial risks and opportunities, and to secure a stable financial position that enables it to continue to operate for the foreseeable future.
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The organisation is prioritising its resources within tighter budgets, for example by achieving cost reductions and by improving efficiency and productivity.
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Value for money conclusion based on review of the annual governance statement and other local risk-based work
The Commission has revised the approach to the auditor’s local VFM audit work at the following types of audited bodies from 2011/12:
- Other local government bodies not included above (for example, national park authorities, waste disposal authorities, joint committees and integrated transport authorities).
- Probation trusts.
- Strategic health authorities (SHAs).
As set out in the Commission’s Work programme and scales of fees 2011/12, auditors will apply a lighter-touch approach to their local VFM audit work at these types of audited body and will meet their VFM duty by:
- reviewing the annual governance statement;
- reviewing the results of the work of other relevant regulatory bodies or inspectorates, to consider whether there is any impact on the auditor’s responsibilities at the audited body; and
- undertaking other local risk-based work as appropriate, or any work mandated by the Commission.
Auditor guidance
The Commission produces guidance to support auditors in meeting their statutory VFM responsibilities. The guidance is available from the following link:
The guidance covers local VFM work at the following types of audited body:
- NHS trusts.
- Primary care trusts.
- Single-tier and county councils, district councils, fire and rescue authorities, the Greater London Authority, the London Development Agency and Transport for London.
- Police authorities.
- Other local government bodies.
- Probation trusts.
- Strategic health authorities.