Agenda item

To provide the Audit & Governance Committee with oversight of the plan for the external audit of the 2023/24 Statement of Accounts. 

Witnesses:

Janet Dawson, Partner, EY

Nikki O’Connor, Strategic Finance Business Partner (Corporate)

Key points raised in the discussion:

1.    The Partner - EY introduced the report noting that EY was the Council’s appointed auditor from the 2023/24 audit cycle under the new PSAA contract for the next five years, she was being supported by the Senior Manager - EY. The report outlined the situation in the wider market and the consultation processes were paused due to the calling of a general election, EY was undertaking its full reporting scope against the existing CIPFA Code. EY clearly stated its roles alongside the roles of the Committee and the Council’s Finance team, setting expectations.

2.    The Partner - EY noted that the key areas of risk outlined could change as EY gets to know the Council, any changes would be reported. Whilst the level of performance materiality was set at £21 million, any differences over £2.1 million would be reported to the Committee; she asked whether the Committee was satisfied with that level. She highlighted the value for money responsibilities and focus on financial sustainability, that had not been identified as a significant weakness, although the whole sector faced uncertainty over future funding arrangements. EY would be undertaking its own work on the scoping for the Group accounts, particularly around investment properties that sit within the subsidiaries.

3.    The Partner - EY noted that EY was committed to working to the timeline set out, with a report scheduled for November’s Committee. She confirmed EY’s independence from the Council. She noted that the fees were set at £384,130 by PSAA, those fees represented a significant increase for all organisations. She highlighted the section about non-compliance of laws and regulations for example in the case of fraud and the responsibilities for external auditors had been tightened by the regulator, any additional work would have an associated fee.

4.    A Committee member referred to the data migration onto a new Enterprise Resource Planning (ERP) system, asking whether the proposed work by EY would duplicate the work underway by Internal Audit. The Partner - EY explained that EY was reviewing the operation of the control environment across two different systems in the financial year for their own reporting purposes. She noted that must be documented to satisfy the audit requirements and EY must review the migration of data between the systems to ensure that it was complete, accurate and unamended. EY would work in a streamlined way using Internal Audit’s work.

5.    A Committee member sought clarification that the scope for EY’s work would be on the data migration from SAP to Unit 4/MySurrey for financial data only or whether it would cover all data migrated such as payroll data. The Partner - EY clarified that the focus was on the financial reporting data but EY would also test down into a year-end number which relied on non-financial information.

6.    A Committee member noted that the report was incomplete as there were several items regarding the fees that were to be confirmed, asked why that was the case and when those figures would be available. The Partner - EY noted that those fees were to be confirmed as there was more work to be done to assess how much work was needed in those areas. Regarding data migration and the impact on the financial reporting of the statements, the Finance team was mapping the migration between the systems; until that work was completed it would be difficult to understand the issues identified and the complexity. EY would undertake work from the start of July with the Finance team and would work out when they would be able to confirm those fees.

7.    A Committee member was uneasy with the recommendation for the Committee to approve the audit plan without those figures included. The Chairman asked whether EY could provide the figures for the July Committee. The Partner - EY, noted that whilst PSAA determined the fee, a fee range could be provided for the July Committee. The Committee agreed to defer the recommendation to July.

8.    The Chairman asked why that level of materiality was chosen, which was based on gross expenditure. The Partner - EY noted that EY was required to look at what the key areas of interest for the stakeholders were, typically for local authorities the assumption was that the taxpayer was most interested in the gross expenditure rather than a balance sheet figure like net assets in the case of the Surrey Pension Fund accounts. Typically, the materiality was between 0.5 and 3% of gross expenditure. Within local authorities and different audit firms the typical range was between 1 to 1.8% of gross expenditure, EY used 1.8% for the Council as it was not viewed to be a significantly risky organisation. The Committee confirmed it was happy with the level of materiality.

9.    The Chairman asked whether the walkthroughs scheduled in April had been completed as per the timeline. The Partner - EY confirmed that was the case.

10.  The Strategic Finance Business Partner (Corporate) noted that the 2023/2024 draft Statement of Accounts were delayed by a few weeks from the expected 31 May 2024 publication date. She confirmed that the 2022/23 Statement of Accounts were signed off by the previous external auditors Grant Thornton on 27 March 2024.

11.  The Chairman asked whether the audit teams were set up and ready to go. The Partner - EY confirmed that was the case.

12.  The Chairman asked whether a date in June had been identified for the further planning and walkthroughs. The Partner - EY confirmed that further planning was underway in the background, there was not a team on site currently. She noted that she was working with EY colleagues and the Council’s Finance team to progress the work and understand where any issues were and pulling together the relevant documents so the team would be ready to go in July.

RESOLVED:

The Committee deferred the 2023/24 Audit Plan to July’s Committee meeting (Annex 1).

Actions/further information to be provided:

1.    A15/24 - The Committee Manager will update the work plan adding in the deferred item and respective recommendation to July’s Committee agenda for approval and that report will include the fee range to be provided by the Partner - EY.