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, 2020 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 (Grant Thornton) which had been submitted in accordance with International Standard on Auditing 260, the External Audit Governance Report 2019/20.  Mr T DeZoysa (Engagement Manager) attended the meeting to present the report.

The report incorporated, amongst other things, the following:

·         The Financial Statements, including the significant audit risks, findings from the group audit, area of audit focus and judgements and estimates, the Going Concern assumption and other responsibilities under the Code

·         The current position with regard to COVID-19 and the impact on the financial statements and challenges

·         The Value for Money Conclusion

·         The Accounts production and audit process

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

Appendices to the report provided the following:

·         The Action Plan to address issues identified

·         The position with regard to the follow up of prior year recommendations

·         The Audit Adjustments

·         The audit fees charged for the audit and the provision of non-audit services

·         The proposed audit opinion which would be confirmed following the receipt of the assurance from the Pension Fund Auditor – it was anticipated that the Group and Council would be provided with an unqualified/clean audit opinion with an Emphasis of Matter paragraph relating to the material uncertainty around the valuation of land and buildings as a direct impact of COVID-19 at the end of November following consideration by the Council on the 26^th November, 2020

It was reported that the COVID-19 pandemic had significantly impacted on the normal operations of the Council from March 2020.  Whilst this had not had a major impact on the financial outturn for 2019-20 the scale of the impact was being felt during 2020/21.  The significant challenges and impact of this in relation to the increased costs, lost finance and preparation of the financial statements was outlined.  The External Auditor had updated their risk assessment to consider the impact of the pandemic and an audit plan addendum had been issued on the 22^nd April,2020 which reported an additional financial statement risk in respect of COVID-19 and also highlighted the impact on their Value for Money approach.

In relation to the Financial Statements, the report summarised the key findings in relation to the 2019/20 external audit.  This work had been completed remotely and one adjustment in relation to the Pension Fund liability had been identified although this did not impact on the Council’s General Fund or useable reserves position.  Further details of the audit recommendations were outlined within Appendix C.  In addition, a small number of recommendations for management were detailed within Appendix A.  Work was now substantially complete and there were no matters of which the External Auditors were aware would require modification of the audit opinion or material changes to the financial statements subject to a small number of outstanding matters as detailed.

The External Auditors had no concerns about the assumptions of the Council and there was no material uncertainty about the ability to continue as a going concern.  In addition, they had agreed with the Council’s assumptions with regard to the revised Medium-Term Financial Strategy which catered for the financial implications of the COVID-19 pandemic.

The External Auditor’s Value for Money risk assessment had been updated to document their understanding of the Council’s arrangements to ensure critical business continuity in the current environment.  The VFM risks identified related to the Council’s financial standing and the Glassworks project’s governance and risk management arrangements and appropriate plans had been put in place to ameliorate those risks.  It was pleasing to note, however, that no new VFM risks had been identified in relation to COVID-19.

The External Auditor had concluded that the Council had proper arrangements in place to secure economy, efficiency and effectiveness in its use of resources and it was anticipated that they would be issuing an unqualified VFM conclusion.

Finally, thanks were expressed to officers and members for their continuing help and co-operation throughout the audit work in what had been a particularly difficult time and at an earlier time than was required.

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 a discussion of the principles of how the Committee operated particularly in relation to whether or not all members of the Committee should have access to all commercially sensitive information.  Mr DeZoysa outlined the External Auditors role and the information required to enable them to make a judgement, to make a true and fair conclusion and to issue an audit opinion.  He commented that no material omissions had been identified.  In relation to the Glassworks a recommendation had been made to management that matters about the project should be reported and discussed within this Committee and indeed the Work Plan had identified that a report on this would be submitted to the December meeting.  The extent of the information to be presented was something that needed to be discussed between Members and Officers.  It was also noted that information of a commercially sensitive nature would be provided to members at the conclusion of this meeting

·         In relation to information awaited from the Pension Scheme Auditors, an assessment would be made as to whether or not this would have an impact on the Council’s accounts and pension liability before a final conclusion was issued

Written responses to questions asked by Members of the Committee were provided as follows:

·         In response to requests about outstanding work:

o    it was reported that work on all areas mentioned as outstanding had been substantially completed at the time of the report (19^th October, 2020) in order to propose the draft audit opinion detailed within Appendix E.  Since that time, further outstanding areas had been completed particularly on pensions audit work, which was a significant risk within the audit plan, although the programme of work performed by the Pensions Authority Auditor had not yet been received.  This was out of the control of the Council’s External Auditor, but it was noted that this request had been submitted in March, 2020.  It was anticipated that this information would be received by the end of October/early November, however, the difficulties that fellow auditors were experiencing was noted and acknowledged

o   Working under unprecedented circumstances and remote auditing was a challenge for both the External Auditor and the Council equally.  It was noted that this was one of the reasons an extension had been granted for the preparation of the accounts and auditing

·         With regard to matters in relation to Fraud, it was noted that, as mentioned within the statement of responsibilities, the overall responsibility for the prevention and detection of fraud was that of the Senior Management Team of the Authority.  In accordance with the auditing standards, the External Auditor was required to ask questions and understand of how the Audit and Governance Committee gained assurances from Management in relation to fraud.  These questions had been directed to the Chair of the Committee and were around how the Chair was satisfied that there were proper arrangements in place to prevent, detect and report fraud within the Authority.  A copy of the letter together with the responses of the Chair had been circulated to all members of the Committee

·         The Committee’s workplan included proposals to receive regular reports on the Glassworks project on an at least bi-monthly or more regular basis should the need arise

·         In response to the External Auditors recommendation in relation to budget setting and monitoring, questions were asked as to whether the current systems and procedures were sufficiently robust or could be improved:

o   the External Auditor reported that their work in 2019/20 indicated that there were indeed robust budget monitoring and reporting processes in place.  Their recommendation was forward looking to continue the work in these unprecedented times, working with all stakeholders to provide accurate budgets and monitoring on a timely basis.  The COVID-19 pandemic had brought significant challenges and financial pressures, not just for the Council but of the Local Government Sector as a whole.  These additional COVID-19 pandemic challenges had not been in existence before March 2020.  The recommendation was looking at actions going forward to address these challenges, whilst keeping Members fully informed

o   the Council’s view was that the procedures were already in place to track the financial impact of COVID-19 response and recovery effort.  This was monitored daily and reported to the Senior Management Team on a weekly basis with periodic updates being provided to Cabinet as part of the quarterly performance management cycle.  A mitigation (financial recovery) plan was also in place to safeguard the Council’s financial Standing

o   Any known ongoing impacts had been factored into the Council’s updated Medium-Term Financial Strategy and budget 2021/22 budget proposition.  This would be reported to the Senior Management Team, the Audit and Governance Committee and Cabinet as part of established budgetary procedures

o   The Council also continued to lobby the Government for a needs-based and sustainable funding package for the sector

·         Information on the Glassworks project which was currently commercially sensitive, as previously reported, would be provided at the close of the meeting

·         It was noted that the Council continued to review the systems in the market place to automate the Fixed Management System.  Each system in the market place had its pros and cons.  It should also be noted that the current system, whilst manual, was fit for purpose

·         The External Auditor explained why is was not possible to formally conclude the audit and issue an audit certificate until work had been completed that was necessary to issue the Whole of Government Accounts (WGA) Component Assurance Statement. 

o   This was the same situation as last year’s audit opinion.  In essence, the External Auditors could not issue the audit closure certificate (which was part of the audit process) with the audit opinion.  The reason for that was that the WGA, which was an assurance piece of work, was a report to the National Audit Office rather than the audit under the ISA (UK).  Performing the WGA work was part of the External Auditor’s overall audit appointment 

o   The National Audit Office prepared the WGA whilst Grant Thornton acted as the component auditor and followed group audit instructions from the National Audit Office on what to do.  The Council prepared a data collection pack for the WGA set by the National Audit Office and all Authorities were provided with the same data collection pack.  Grant Thornton reviewed that data to ensure that it was consistent with the numbers they had audited

o   The data pack included the same balance sheet, income and expenditure for the year ended 31^st March 2020 that had been audited in the draft accounts, therefore, overall numbers were exactly the same as the 2019/20 draft accounts

o   There would be more analysis of inter authority/government debtors, creditors and loans so that the National Audit Office could eliminate those in the WGA consolidation process.  Grant Thornton would check the accuracy and validity of these inter authority/government balances and transactions.  However, they were all reconciled back to the Statement of Accounts that had been audited under ISA(UK) and for which an unqualified opinion with an Emphasis of Matter paragraph (as stated within Appendix E to the report) was proposed to be issued.

o   This was the reason Grant Thornton could issue the audit opinion of the financial statements of the Authority and Value for Money conclusion before work had been concluded on that assurance piece of work, however, technically they could not close the audit until work on the WGA had been completed

RESOLVED 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; and

RECOMMENDED TO FULL COUNCIL ON THE 26^th NOVEMBER, 2020:-

(i)            That the External Auditor’s (ISA 260) Report 2019/20 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 2019/20 financial statements be noted.