Agenda item

To inform the Committee of the result of the external audit of the council’s 2013/14 Statement of Accounts, to receive the external auditor’s Audit Findings Report and to approve the council’s letter of representation from the Director of Finance. 

Declarations of Interest:

None.

Witnesses:

Nikki O’Connor, Finance Manager – Assets & Accounting

Sheila Little, Director of Finance

Andy Mack, Engagement Lead – Grant Thornton

Kathryn Sharp, Senior Manager – Grant Thornton

Guy Clifton, National Value for Money Lead – Grant Thornton

Key points raised during the discussion:

1.    The Finance Manager – Assets & Accounting introduced the report and highlighted that it was the earliest that audited reports had been brought to committee.  A final review had been undertaken by the Grant Thornton technical team in the past 12 hours which had led to a number of changes.  The amended pages were tabled and are attached as Annex B to these Minutes.  The amendments did not change the outturn position of the Authority or the bottom line of any of the primary statements.

2.    The amendments were explained to the committee.  Two additional notes had been agreed relating to the Cash Flow Statement – Notes 40 and 41, these provided additional details on material items contained within the cash flow statement.  In addition, changes had been made to the cash flow statement itself in relation to the collection fund adjustment.  This was a late change to the accounts due to delays in the receipt of business rate figures from the borough and district councils.  This adjustment had been incorrectly omitted from the version of the cash flow statement distributed to members previously.  Note 12 had been restated to show the write-off of Academy Schools as impairment rather than de-recognition.

3.    The original Note 38 had tried to restate the 2012/13 position according to the new version of IAS19.  It had been decided to remove the restated figures and not to try to make them comparable to the 2013/14 figures. 

4.    Members queried whether it would be helpful to add a Note explaining that the Council is paying interest on Academy moneys that it no longer owns.  The Finance Manager – Assets & Accounting agreed that there was an ongoing cost to the council of borrowing for capital expenditure on academy buildings but that this borrowing could not be separately identified as capital borrowing for specific schemes does not occur.  Borrowing is done in line with the Treasury Strategy.  This approach was not unique to Surrey County Council and occurs across local government.

5.    Members asked if the delay in certification of completion of the audit would prevent the accounts from being signed off following the meeting.  The Grant Thornton Engagement Lead explained that there were two stages to closing an audit.  Firstly, the approval of the accounts, then the certification of completion of the Audit.  It was common practice to wait for September when the assurance statement in respect of the authority’s Whole of Government Accounts consolidation pack is issued. 

6.    The term ‘componentisation’ was queried.  The Finance Manager – Assets & Accounting explained that land was not depreciated at all.  A material item within a building would be depreciated at a different rate to the property itself.  Separate components within our asset register would be created for these different components.

7.    A Member highlighted that some staff would appear in both Note 28 and Note 29 and that these weren’t completely distinct categories.

8.    The Chairman queried who approved the exit payment to the former Strategic Director for Adult Social Care.  Officers confirmed that the Chief Executive approved this payment.

9.    The Chairman queried how the level of provision of bad debt was decided.  The Finance Manager – Assets & Accounting explained that a number of methodologies were applied to decide the provision of bad debt, dependent on the nature and age of the debt. 

10.  The Chairman asked if it was necessary to retain the Equal Pay provision of £1.5m and if it was possible that there would still be claims.  The Finance Manager – Assets & Accounting agreed that the time set for claims ended on 31 March 2013 but explained that the high profile case in Birmingham had led to an extension to the time allowed for claims.  In addition, recent rulings on the minimum wage meant that it was considered appropriate to retain the provision at present. 

11.  The Chairman stated that he was content with dealing with the firefighters’ pensions relating to injury awards as a contingent liability rather than as a specific provision. 

12.  Grant Thornton’s Engagement Lead stated that it was a high quality set of Statements and that the streamlining and decluttering had contributed to the achievement of the shorter timeframes.  Grant Thornton was happy with the provisions and contingent liability assumptions.  The Statements were not in Plain English but were well-presented within the constraints of International Financial Reporting Standards which were inherently technical in nature.  The hard work that had been put into bringing forward the timetable for signing off audited accounts was praised.  He pointed out that Surrey had volunteered to bring forward the timetable but by 2017/2018 the date for all local authorities to approve their accounts is proposed to be brought forward to 31 July.

13.  The Engagement Lead informed the committee that he expected to issue and audit opinion by early August.  His original intention had been to sign the opinion by Thursday 31 July and the short delay was due to the need to complete some final internal reviews.  Grant Thornton would work with the Council to bring forward the timetable for 2014/15 with a view to achieving a July opinion and this would include a review of the firm’s own internal review processes to ensure these are as effective as possible. 

14.  A Member complained that the late amendments had made the accounts difficult to understand and scrutinise.  The Engagement Lead stressed that the amendments had not been fundamental to the accounts and were simply about accurate disclosure. 

15.  The Chairman queried the finding that initial working papers provided to support the revenue figures did not agree to the financial statements.  The Finance Manager – Assets & Accounting explained that while the figures in the financial system were correct, they were not exporting to Excel properly for Grant Thornton testing.  A way of manually working around this had been found and a less manual solution would be investigated for the future.  The Senior Manager from Grant Thornton agreed that they were satisfied with the figures provided.

16.  A Member queried the amber findings on two issues regarding internal controls.  The Finance Manager – Assets & Accounting explained that the NBV issue with the asset register would be reconciled and had they more time it was likely that this could have been resolved before the end of the audit.  The management response is stated in the Action Plan on page 271 of the agenda papers. 

17.  In response to a question about schools which are excluded from the council’s balance sheet, the Finance Manager – Assets & Accounting highlighted Note 14 which was not yet a requirement for inclusion but is likely to become so. 

18.  The Director of Finance informed the committee that she would not sign the letter at Annex C of the report until after the committee meeting.  She also confirmed that the amendments to the accounts reported at the meeting did not require any changes to the letter. 

19.  The Director of Finance paid tribute to the team who had worked on the Statement of Accounts for outstanding performance throughout the process.  The committee endorsed this praise. 

20.  The Director of Finance expressed her disappointment that the accounts would not be signed off immediately following the meeting.  She informed the committee that there would be discussions on lessons learnt following the last-minute recommendations from Grant Thornton.  For example, the technical review of the accounts happened later than it should have done.  The Engagement Lead from Grant Thornton agreed that there had been excellent project management at the council.  He stated that he was very impressed with the council’s achievement in bringing forward the accounts timetable so significantly, which reflected very well on all in the finance team.  He was willing to explore with the council ways to improve the process for next year.  This would include reviewing Grant Thornton’s arrangements for sign off including around project management and resilience.

Actions/Further information to be provided:

None.

The committee agreed to consider Item 9: Surrey Pension Fund Accounts 2013/14 and Grant Thornton External Audit Findings Report before taking decisions on both Item 8 and Item 9.