Agenda item

The Council’s External Auditor will submit a report summarising the key issues identified during the audit of the Financial Statements for the year ended 31^st March, 2018 for the Authority and on the assessment of the Authority’s arrangements to secure Value for Money.

The Committee considered a report of the External Auditor (KPMG) which had been submitted in accordance with International Standard on Auditing 260, the External Audit Governance Report 2017/18.  Mrs C Partridge representing KPMG attended the meeting to present the report.

The report incorporated, amongst other things, the following:

·         The Financial Statements, including the significant audit risks, area of audit focus and judgements

·         The proposed opinion and audit differences

·         The Accounts Production and audit process

·         The current position with regard to the completion of the audit of the financial statements

·         The Value for Money Conclusion

Appendices to the report provided the following:

·         Key issues and recommendations

·         The follow up of prior year recommendations – all of which had been implemented

·         The audit differences

·         Materiality and the reporting of audit differences

·         The communications that had been made to this Committee as required

·         The Declaration of independence and objectivity

·         The audit fees

·         The IT Audit Recommendations

In relation to the Financial Statements, the report summarised the key findings in relation to the 2017/18 external audit.  Subject to all outstanding queries being resolved to their satisfaction it was anticipated that an unqualified audit opinion on the Authority’s financial statements would be issued before the deadline of 31^st July, 2018 following consideration by the Council on the 26^th July, 2018.

Based on the initial assessment of risks to the financial statements a number of significant risks (excluding those mandated by International Standards on Auditing) had been highlighted, as detailed below, but no issues had been identified as a result of the work undertaken:

·         Valuation of Property, Plant and Equipment – this would not involve any material adjustments and would not impact on the singing off the financial statements

·         Pensions Liabilities

·         Faster close for the production of the financial statements

A number of adjustments had been identified:

·         one with a total value of £17.050m (in relation to payments to the South Yorkshire Pensions Authority) but which resulted in no impact to the reported deficit on the provision of services and no impact to the general fund and the Housing Revenue Account balance

·         one unadjusted difference with a value of £5m in relation to pension asset valuation

Based on the work undertaken three recommendations had been made and these were detailed within Appendix 1.  These related to SAP IT controls, the Glassworks Governance Controls and the Receipt of related party declaration forms from Councillors.  These had ben discussed with management and the response to those recommendations was detailed.

As at the date of the drafting of the report the following procedures still had to be completed:

·         the final review of pension assumptions used by the actuary

·         the final procedures relating to the allocation of pension fund assets

·         the completion of WGA work

·         updating work in response to a small number of outstanding queries

In relation to the Value for Money arrangements it was reported that it had been concluded that the Authority had made proper arrangements to secure economy, efficiency and effectiveness in its use of resources and it was anticipated, therefore, that an unqualified Value for Money opinion would be issued.  One significant Value for Money audit risk had been identified in relation to the Delivery of Budgets as a result of reductions in central government funding and other pressures which required the Authority to make additional savings beyond those from previous years details of which were outlined within Appendix 2.

Finally, Mrs Partridge asked to place on record her thanks to officers and members for their continuing help and co-operation throughout the audit work.

The presentation engendered a full and frank discussion during which matters of a detailed and general nature were raised and answers were given to Members questions where appropriate.

The following issued were referred to:

·         there was some concern expressed at the late publication of this report which gave members little opportunity to give it the full scrutiny it deserved.  Mrs Partridge acknowledged this and explained the reasons which were largely due to the change in timescale for the approval of the final accounts.  For this reason she had gone through the report in some detail.  The Service Director Finance stated that consideration would be given as to how this matter could be addressed in future years

·         In relation to the IT controls, a number of areas had been identified for further improvement particularly in relation to SAP.  These issues largely related to access requirements and permissions and the IT Service was addressing these issues as a matter of urgency.  An assurance was given that no-one outside IT could access the system or change permissions.  It was noted that the recommendations in relation to SAP Privileged Profiles had been completed by July 2018

·         In relation to specific questioning, Mrs Partridge explained that the £5m unadjusted audit difference in relation to pension asset valuation was due to the actuary having to use estimates to provide their valuation in time for the draft accounts.  There were, however, no particular  concerns from an External Audit perspective about this

·         External Audit had considered the level of prudence within the key judgements of the 217/18 financial statements and accounting estimates and all findings were within an acceptable range

·         External Audit had considered the assumptions behind the Medium Term Financial Plan particularly in relation to the Glassworks project the full cost of which was not yet known.  Work was progressing on this and Phase 2 was likely to commence in the near future.  Whilst there were no specific areas of concern at the moment, given the capital investment involved, uncertainty around returns and the significance for Barnsley it was important that strong governance controls were maintained.  It had been recommended, therefore, that this Committee consider whether there were any gaps in assurance in relation to this project.  Arising out of the discussion the following points were highlighted

o   It was suggested that a ‘summary document’ detailing key risks  and governance arrangements should be submitted so that Members could see the complete picture of potential issues.  The Chair stated that this Committee would be kept informed of all issues arising from this project

o   The Executive Director Core Services briefly commented upon the governance and management arrangements in place and he would be happy to give a report on how this operated together with the assurance arrangements in place.  The Council would be asked to consider the arrangements for Phase 2 of the project in the near future and within that context, a report could be presented to this Committee in September

·         The Service Director Finance reported that pension liabilities for NPS and Norse were not considered material enough to be included within the group accounts, however, information on this could be provided

RESOLVED:-

(i)            That the External Auditor’s Report 2017/18 be received and referred for consideration by the Council to be held on the 26^th July, 2018;

(ii)          That the Auditor’s findings on the effectiveness of the Council’s internal controls and the conclusion on the Council’s arrangements for securing Value for Money be noted; and

(iii)         That the Committee place on record their thanks and appreciation for the hard work of the External Auditor and the Service Director Finance and his Team in this process.

RECOMMENDED TO FULL COUNCIL ON THE 26^th JULY, 2018:-

(i)            That the External Auditor’s Annual Governance Report 2017/18 be approved;

(ii)          That the findings on the effectiveness of the Council’s internal controls and the conclusions on the Council’s arrangements for securing Value for Money be noted; and

(iii)             That the findings from the audit work in relation to the 2017/18 financial statements be noted and accordingly, the final accounts 2017/18 be approved.