To consider Grant Thornton’s audit findings 2014/15.

18.1           Attention was drawn to Grant Thornton’s report, circulated at Pages No. 12-45, which set out the audit findings for the Council for 2014/15.  Members were asked to consider the report. 

18.2           Alex Walling, Engagement Lead from Grant Thornton, explained that the report highlighted the key findings from Grant Thornton’s audit of the Council’s financial statements for the year ended 31 March 2015.  Under the Audit Commission’s Code of Practice, Grant Thornton was required to report whether, in its opinion, the Council’s financial statements represented a true and fair view of the financial position, its expenditure and income for the year, and whether they had been properly prepared in accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Local Authority Accounting.  In addition to this work, Grant Thornton was also required to reach a formal conclusion on whether the Council had put into place proper arrangements in terms of the Value for Money (VFM) conclusion.

18.3           Members were advised that today was the deadline for issuing opinions and by the end of the meeting the Statement of Accounts 2014/15 and Letter of Representation would both be approved and posted online.  It was anticipated that an unqualified opinion would be issued in respect of the financial statements which meant that they represented a true and fair view.  The accounts contained only a small number of errors, the majority of which had been adjusted by management, and the working papers continued to be of good quality with staff responding promptly to all queries.  One area which had been flagged up was bad debt provision for housing benefit; this was not an error but it was on the low side, particularly given the move towards Universal Credit.  No adjustments had been identified affecting the Council’s reported financial position which was very positive.  In terms of VFM, Grant Thornton proposed to give an unqualified conclusion again this year.  One area which had been highlighted for Tewkesbury Borough Council, and the majority of other local authorities, was the longer term financial position of the Council.  Whilst there were no issues with the arrangements within the Council, there was a potential overreliance on New Homes Bonus which was a concern given that there were so many unknowns going forward.  There had been no issues with the whole accounts and no significant weaknesses had been identified within the internal controls.  A small number of recommendations had been made and were set out at Appendix 1 to the report.  The Engagement Lead thanked the Finance team and reiterated that the arrangements in place at the Council were generally very good, the working papers were excellent, and the team was very prompt in responding to audit queries.

18.4           In drawing attention to Page No. 20 of the report, the Engagement Lead explained that there were two presumed significant risks which were applicable to all entities, whether corporate or public sector: improper revenue recognition, as there was a presumed risk that revenue may be misstated, and management override of controls.  The audit work undertaken had not identified any issues in those regards.  Operating expenses and employee remuneration had been identified as ‘other’ risks, and detailed testing was carried out due to the amount of transactions and large figures involved.  No significant issues had been identified aside from it being flagged up that remuneration for one Officer had been erroneously omitted from senior employee remuneration. Pages No. 22-23 of the report looked at the policies, estimates and judgements set out in the accounts and, whilst no significant issues had been found, there was an ‘amber’ warning around bad debt provision; this was an estimate and something which Officers might like to consider for the future, particularly in respect of housing benefit and Universal Credit.  Page No. 25 of the report set out the other areas which Grant Thornton was required to communicate when approving the accounts e.g. matters in relation to fraud, non-compliance with regulations, confirmation requests from third parties.  No significant issues had been identified in respect of internal controls.  Page No. 28 of the report set out the adjusted and unadjusted misstatements and Members were informed that it was quite an achievement that none had been required in 2014/15.  Misclassifications and disclosure changes were included at Page No. 29 and set out the details of two disclosures in respect of senior officer remuneration and minor changes to the financial statements to improve presentation e.g. ensuring cross-references to other notes within the accounts were correct.

18.5           Page No. 31 of the report set out the areas covered in the VFM conclusion which was based on ensuring that the Council had proper arrangements in place for securing financial resilience and challenging how it secured economy, efficiency and effectiveness.  It was proposed that, from 2015/16 onwards, the VFM conclusion would look at slightly different areas: finance; partnership working, a growing area in the public sector; and decision making.  A document was currently out for consultation which closed later that day.  Overall, the work had highlighted that the Council managed its finances effectively, had a relatively high level of reserves and had managed its expenditure to achieve an underspend against its original budget, whilst delivering its savings targets.  The Council’s Medium Term Financial Plan had gaps in future years for identified savings and there was a potential overreliance on a single source of income with the New Homes Bonus, which was something to be aware of.  Page No. 32 onwards provided more detail around the areas which Grant Thornton had been asked to look at by the Audit Commission with the final fees charged for the audit set out at Page No. 38.  Confirmation was provided that there were no significant facts or matters which impacted on Grant Thornton’s independence as auditors.

18.6           A Member drew attention to the action plan, set out at Pages No. 42-45 of the report.  She noted that the first recommendation related to the monitoring of the method for calculation of bad debt provisions and she queried where this was reported.  The Finance and Asset Management Group Manager confirmed that it was monitored internally by management but he was happy to report to the Committee, if Members so wished.  The Member indicated that she would like an update in six months’ time given that it was a recurring issue within Grant Thornton’s report.  With regard to the Council’s reliance on New Homes Bonus, a Member indicated that the policy statement he had read suggested that the New Homes Bonus was very likely to continue and he queried at what point it would be considered acceptable to build in that assumption.  The Finance and Asset Management Group Manager explained that there had been a lot of rumours about potential changes over the last 12 months but it was not necessarily the case that New Homes Bonus would end in totality as that would have a significant impact on a number of district councils.  Notwithstanding this, decisions could only be made based on current knowledge until the Council was officially advised of any changes.  Officers took a prudent view on the amount of income which was likely to be received; £600,000 was currently included in the budget but over £800,000 had been received which gave a significant buffer to be able to react to any changes in Government policy.  Housing was a big issue for the Government and the Council should be in a good position to benefit from the New Homes Bonus scheme if it was not amended significantly.  Members would be updated as soon as a definite message was received by the Government.  The Member expressed the view that ‘overreliance’ was an overly critical word to use and the Engagement Lead indicated that the intention was simply to flag up the uncertainty about the future of New Homes Bonus.  The Finance and Asset Management Group Manager confirmed that he had no issue with it being highlighted as a potential risk and he felt that it was important that the risk be acknowledged by both Officers and the auditors.

18.7           The Chairman offered his congratulations to the Finance team on a very positive report and thanked them for their hard work on behalf of the Audit Committee.  Accordingly it was

RESOLVED          That Grant Thornton’s audit findings 2014/15 be NOTED.