Agenda item

To provide the Audit & Governance Committee with an update on the process for undertaking the external audit of the 2023/24 Surrey Pension Fund. 

Witnesses:

Hassan Rohimun, Partner, EY

Francis Llave, Audit Manager, EY

Keevah Dumont, Deputy Head of Accounting and Governance

Anna D’Alessandro, Interim Executive Director - Finance and Corporate Services

Key points raised in the discussion:

1.    The Partner - EY in charge of the Surrey Pension Fund external audit outlined the ‘Audit risks and areas of focus’. He noted that EY set the overall planning materiality at 1% of the net assets which at the planning stage was £52.9 million, the performance materiality drives the testing strategy and was set at 50% of the planning materiality as it was EY’s first-year audit; that level would be reviewed upon completion of the audit. Audit differences materiality was set at £2.6 million.

2.    A Committee member noted his disappointment and frustration regarding the incomplete plan which needed to be updated and resubmitted. He queried why that information had not been included given the Committee’s push back on the External Audit Plan 2023/24 deferred from June due to the missing fees.

3.    The Chairman asked whether the walkthrough testing work was on track and when it would be finished. The Partner - EY explained that substantive testing had been undertaken this week after receiving the draft accounts and testing would start on year-end procedures. He noted a slight delay in the completion of walkthrough testing due to awaited information from management. The Audit Manager of Surrey Pension Fund audit - EY added that the aim was to finish the walkthrough testing by the end of next week. 

4.    A Committee member questioned the Committee’s purpose as it was being asked to approve the plan yet work on it was in progress, he asked whether EY was working at risk. The Deputy Head of Accounting and Governance explained that the plan should have been presented earlier to the Committee, however there were delays to EY’s independence checking. She noted that it had been agreed for the auditors to be on site and undertake their walkthrough testing, to be able to work towards the 26 July end date for the fieldwork audit.

5.    The Chairman stressed that the plan could not be approved without the fees which were to be determined (TBD) and he asked when those could be provided. The Partner - EY noted that the Committee could be provided with the fee range by the end of the week. As proposed by the Vice-Chairman, the Committee agreed to delegate the approval of the fees to the Chairman in consultation with the Vice-Chairman following circulation to the Committee to review.

6.    The Interim Executive Director - Finance and Corporate Services explained that this year the situation was unusual on both the Surrey Pension Fund and on the Council’s side because of Unit 4/MySurrey, it was the first set of external auditors with a new system. She noted that EY was working through lots of information and did not know what it would find, and so it was unsure about the fees. She noted that in the past the Committee received the audit plans before the audit started. She noted that EY had its own processes of risk assessment and it needed to receive all the completed independence forms before it could start the work; that had been significantly delayed.

7.    A Committee member noted that it was an unsatisfactory situation and unacceptable process. Upon receipt of the fees, if the Chairman and Vice-Chairman deem those to be unsatisfactory, he asked what the process was to address that. The Interim Executive Director - Finance and Corporate Services noted that if the work had not started in May, then the statutory deadline would not be met. A Committee member noted that the audit plans should have been received by the Committee earlier to meet the statutory deadline. Even if the Committee was unhappy with the fees, he queried whether EY would stop the work and any work underway would be repealed; he believed that would be unlikely.

8.    A Committee member asked what the impact would be of the Committee not approving the plan today, and asked what the deadline for approval was. The Partner - EY noted that the risks had been outlined, the plan should usually be noted by the Committee. He noted that regarding the fees, PSAA appoints the auditors and sets the scale fees and where there might be disagreement on the fees between the auditors and management or a local authority, those fees would be put forward to PSAA to determine.

9.    The Chairman stressed that the plan would be noted subject to the Committee reviewing the fees, it would then be approved; he did not want work to stop. He acknowledged the Committee’s limited scope as PSAA determines the fees. The Interim Executive Director - Finance and Corporate Services noted that she would not like the work to stop. She noted that should the Committee be unhappy with the fees once received, officers could talk to PSAA and look at what could be negotiated.

10.  The Cabinet Member for Finance and Resources agreed with the Committee’s position, he noted that there were delays at the start in the transfer to EY in terms of getting all the necessary agreements from Members. He noted disappointment that at the last Committee meeting the External Audit Plan 2023/24 was deferred to July’s Committee meeting for the same reason. It was a strong message to EY that it must take on board the Committee’s feedback and respond accordingly.

RESOLVED:

Noted the 2023/24 Surrey Pension Fund Audit Plan, to be approved by the Chairman and Vice-Chairman in consultation with the Committee subject to reviewing the fees.

Actions/further information to be provided:

1.    A18/24 - The Partner - EY will provide the Committee with the fee range by the end of the week to review.