Agenda item

To inform the Committee of the result of the external audit of the council’s 2021/22 Statement of Accounts, to receive the external auditor’s final Audit Findings Report and to approve the council’s letter of representation from the Council’s s151 Officer (Deputy Chief Executive & Executive Director of Resources). 

Witnesses:

Barry Stratfull - Chief Accountant (Corporate)

Ciaran McLaughlin - Grant Thornton

Nikki O’Connor - Strategic Finance Business Partner

Russell Banks - Orbis Chief Internal Auditor

David John - Audit Manager

Key points raised during the discussion:

1.    The Chief Accountant (Corporate) introduced the report noting that there had been some delays in the audit, since January’s Committee meeting the service had worked with Grant Thornton to finalise the accounts and a high-level lessons learned report was appended regarding the process for future years.

2.    The Grant Thornton representative noted that the audit was near to completion and an unqualified opinion was anticipated. He highlighted the potential understatements in the pension fund accounts due to timing differences, a decision would be made by the partner panel on 14 March. The final documentation was going through a ‘hot review process’ with the statement of accounts reviewed against the Chartered Institute of Public Finance and Accountancy (CIPFA) code. Grant Thornton was satisfied that there were no significant risks concerning: management override of controls, revenue recognition, Level 3 investments - private equity infrastructure type assets - the assessment of the key judgements and estimates; and no material misstatements concerning: the valuation of land and buildings which had taken a large amount of time to complete due to the level of challenge and information to be reviewed, investment properties, the pension fund net liability. Regarding the consolidated group accounts, the draft group Movements in Reserves Statement (MiRS) presentation was not compliant with the CIPFA code and that had been amended in the final version. He concluded that the quality of working papers and data cleansing were being reviewed to make improvements for next year, and the estimated final fee for the audit was not expected to change. 

3.    A Committee member asked how the valuations were done on the Council’s properties, some of which were specialised. The Grant Thornton representative explained that under the CIPFA code, specialised properties were valued at a depreciated replacement cost as opposed to what the Council might receive if sold on the open market, to recognise the use of the asset to the Council and any obsolescence.

4.    A Committee member referred to the three investment properties that were not revalued and asked what process had been put in place to ensure that those would be revalued regularly. The Chief Accountant (Corporate) explained that the Council was required to revalue assets over a five-year period.  For investment properties this is annually and three had been missed within that timeframe and had been revisited. The Grant Thornton representative noted that the issues occurred in last year's accounts (2020/21) and confirmed that for the current accounts he was satisfied that the investment properties had been valued appropriately. The Strategic Finance Business Partner noted that the process had been changed and Finance was confident that those would not be missed going forward in line with CIPFA’s annual revaluation requirement and the Council’s five-year rolling programme.

5.    Responding to the Chairman’s query on the investment property valuation, the Grant Thornton representative confirmed that Grant Thornton had finalised its review of valuation assumptions following the receipt of queries.

6.    The Chairman queried what the increase in fees of around £110,000 was composed of, the Grant Thornton representative explained that the figure was based on the additionality of time to complete the audit since the end of September which was when the audit was originally scheduled to finish.

7.    Responding to a Committee Member’s query, the Grant Thornton representative confirmed that there had been delays in the work being undertaken as the information had not been as forthcoming as required and therefore extra fees had been incurred. The Committee member asked what provision had been put in place to ensure that the Council would not have to pay an increased fee again. The Grant Thornton representative explained that in the debrief meeting next month with the Council the issues would be reviewed and an action plan put in place to ensure that they would not reoccur in future years. The Strategic Finance Business Partner added that there were reasons for the delay on both sides, those would be reviewed and changes put in place specifically in relation to the quality and timing of working papers, which were dependent on information from across the Council - Finance was running a training course on the matter in an attempt to address these issues. Following on from the initial lessons learned appendix, there would be a more detailed review on areas for improvement with Grant Thornton once the accounts were signed off; the Committee member requested more information on that.

8.    A Committee member asked whether it was the first time the Council had lagged behind on accounts sign off or had that happened previously. The Strategic Finance Business Partner explained that it was the first time the Council had missed the statutory deadline for a significant number of years, she highlighted that a significant number of other local authorities had not signed off their current or last year’s accounts due to national issues relating to infrastructure issues and other factors affecting external audit firms.

9.      Referring to the increased audit fees versus what was planned, a Committee member asked whether an appropriate provision for fees had been made for next year’s accounts. The Strategic Finance Business Partner explained that the Council had increased the budget for 2022/23 based on what was an anticipated market-wide increase - that provision would be less than 2021/22 - a provision had not been made for a delay or an extension.

10.   Regarding the section on other communication requirements in relation to fraud, Grant Thornton had not been made aware of any recent incidents, a Committee member asked whether Grant Thornton was satisfied with the assurances given that an incident of fraud would likely not reoccur. The Grant Thornton representative clarified that the report stated that Grant Thornton had previously discussed the risk of fraud with the Committee. Grant Thornton reported to the Committee annually on management’s view of fraud, that assessment was thorough and provided sufficient assurance that the arrangements in place would identify material fraud. The Orbis Chief Internal Auditor explained that within Internal Audit, there was a Counter Fraud team which undertook reactive investigations and proactive work concerning fraud, corruption or financial irregularities within the Council; through a fraud risk assessment and training on fraud prevention targeted at higher risk services, Internal Audit led on the National Fraud Initiative looking for evidence of fraud.

11.   Regarding the section which stated that the audit of the Council's financial statements was substantially complete subject to outstanding queries being resolved and that Grant Thornton anticipated issuing an unqualified audit opinion shortly after the Committee meeting, a Committee member asked whether that referred to the current Committee meeting and what substantially complete meant. The Grant Thornton representative confirmed that it referred to March’s Committee meeting and that the audit was not fully complete as a review process would be undertaken once in receipt of the final version of the accounts, he did not expect there to be any material adjustments to the accounts and in response to the Chairman, if there were to be then the accounts would be brought back to the Committee. The Strategic Finance Business Partnerclarified that any minor changes - adding words, presentational changes or clarifying points - to the current version in the agenda would be discussed with the Committee Chairman outside of a Committee meeting prior to final sign off.

12.   Responding to a Committee member’s query, the Chairman explained that the Committee was asked to approve the statement of accounts as they were, subject to any material misstatement being reported. The Strategic Finance Business Partner noted that as the audit was substantially complete, it was unlikely there would be any material misstatements, but there was still a chance. She clarified that the accounts would be signed off once confirmed that there were no material misstatements, to be republished on the Council’s website as audited.

13.   A Committee member asked for an example of the ad hoc checks made in respect of fraud and irregularity and whether there was a specific number of checks to be carried out per area. The Orbis Chief Internal Auditor noted that as part of the Internal Audit work, testing would be carried out focusing on the existence and effectiveness of the controls, looking at evidence of potential fraud, all staff were alert to the risk of fraud. The Counter Fraud team analysed data, looking for indicators of irregularity and then investigated those specific incidents, such as matching accounts payable data with payroll data. The Audit Manager noted that if someone had defrauded the Council through expenses for example, an internal control report would be produced following that investigation; that knowledge would benefit the Council. The Orbis Chief Internal Auditor added that most financial irregularities or fraud uncovered would come from management raising the issue or via whistleblowing.

14.   A Committee member referred to key point 10 whereby Grant Thornton had not been made aware of any other incidents in that period, following on from the responses around the different layers of investigatory expertise via the Counter Fraud team he asked whether those were all in place at the time of previous incidents when the Council had been defrauded or whether those were new measures. The Orbis Chief Internal Auditor explained that the dedicated Counter Fraud team was created when the Orbis Internal Audit partnership was formed in April 2018 with East Sussex County Council, and Brighton and Hove City Council, prior to that there was a standalone internal service in the Council.

15.   The Chairman asked whether there was anything that could be done in the future to ensure that all the valuation work was done quickly so as not to cause delays. The Strategic Finance Business Partner noted a national issue about the carrying value of infrastructure assets on the Council’s balance sheet, a statutory override had been passed through Parliament which resolved that for a period of two years, time for CIPFA to enact a workable solution. She highlighted another issue of the delays by the Council’s external valuers on the initial valuation information provided and in their responses to external audit follow-up queries on the data. The Council is working closely with the valuers, setting out clearer Key Performance Indicators (KPIs) around response times and information quality. The Grant Thornton representative highlighted the limited resourcing nationally of valuers qualified to carry out local authority asset valuations and the Strategic Finance Business Partner noted the greater level of detail required in the audit compared to previous years.  

16.   The Chairman asked when the audit would start for the 2022/23 accounts, the Grant Thornton representative explained that the planning visit would be in April, with the plan to be received at the May Committee meeting and the final accounts to be reviewed between July to September, he flagged that the intended September sign off would be a major issue due to the backlog of incomplete audits in the sector. Regarding a suggestion by a Committee member to extend the timeframe to August to October, the Committee concluded that it was vital to sign off next year’s accounts as promptly as possible.

17.   A Committee member welcomed that Grant Thornton had not identified any risks of significant weaknesses in the Council’s efficiency and effectiveness in its use of resources, the Grant Thornton representative noted that the Committee at its last meeting received the detail on the value for money work.

18.   The Chairman thanked officers for all their work and highlighted that as many as 60% of councils had not signed off their accounts for the 2021/22 financial year.

RESOLVED:

1.    Noted the contents of the Audit Findings Report (Annex A).

2.    Approved the 2021/22 Statement of Accounts (Annex B) for publication on the council’s website.

3.    Approved the Executive Director of Resources’ letter of representation (Annex C).

4.    Approved the group letter of representation and Pension Fund letter of representation subject to any material changes (Annex D).

5.    Noted the initial outcomes from the lessons learned review and commitments to improve processes for future years (Annex E).

Actions/further information to be provided:

1.    A4/23 - The Committee will be provided with information concerning the detailed review on areas for improvement and action plan produced following the debrief meeting next month between the Council and Grant Thornton.