To consider Grant Thornton’s Audit Plan 2015/16. 

43.1           Attention was drawn to Grant Thornton’s Audit Plan 2015/16, circulated at Pages No.  27-49, which set out the Audit Plan for the year ended 31 March 2016.  Members were asked to consider the information provided.

43.2           The Engagement Lead from Grant Thornton explained that the report summarised the initial planning work and the risk assessment work in preparing for the audit and the results of initial work around the value for money conclusion.  Page No. 5 of the report gave a high level overview of the key areas which had been considered in understanding the Council and its ongoing challenges.  Financial pressures associated with a continuing reduction in government funding would be picked up as part of the value for money conclusion in terms of the impact on the Council and the alternative plans being put in place for the medium to long term.  There had been some interesting developments around devolution over the past few weeks and a close eye would be kept on this going forward.   Business rates had already been discussed under the previous Agenda item in terms of the ongoing problems with Virgin and the impact on Tewkesbury Borough Council’s financial position.  The earlier deadlines for the closure of accounts was another challenge which was faced over the next few years and a number of local authorities were already preparing and signing-off accounts to shorter deadlines.  She indicated that a national report was being produced around faster close down in order to share good practice in a more formal way and she undertook to ensure that Officers had access to that once it was available.  As part of the audit planning, consideration was also given to key developments in the sector as well as national audit requirements. 

43.3           There had been a major accounting change around International Financial Reporting Standard (IFRS) 13 which defined how fair value was measured and recorded within the accounts.  The main area where local authorities would be affected was around investment properties and surplus assets.  There was a new requirement for local authorities to produce a Narrative Statement which reported on financial performance and use of resources in the year and the Council was also required to submit a Whole of Government accounts pack upon which Grant Thornton would provide an audit opinion. 

43.4           Members were informed that the concept of materiality was applied when performing the audit.  This was determined as a proportion of the gross revenue expenditure of the Council and, for the purposes of planning the audit, this had been deemed to be £698,000, or 2% of the gross revenue expenditure.  Any adjustments over and above 5% of the materiality level were referred to as ‘trivial’ matters but still needed to be stated in the accounts.  There were certain items where separate materiality levels were appropriate, for instance, if they were sensitive or in the public interest, and these were set out at Page No. 34 of the report.  Pages No. 35-36 set out the significant risks which had been identified for the audit.  There were two presumed significant risks which were applicable to all audits under accounting standards: that the revenue cycle included fraudulent transactions and management over-ride of control.  Other key risk areas included operating expenses and employee remuneration.

43.5           The Audit Manager from Grant Thornton had outlined the changes around the value for money conclusion and the table at Page No. 38 of the report set out the new criteria.  Under the old regime, external auditors had been required to look at a wide range of elements and the new system employed a more risk-based approach with targeted work on specific areas.  The main risk was the Medium Term Financial Strategy due to the ongoing challenge of meeting savings outlined by the Chancellor in the Autumn Statement and the reliance on the continuation of New Homes Bonus.  The audit would review the Council’s savings plans and the extent towards which it was seeking to generate additional income and alternative solutions to mitigate the risk of future cuts in resources and government funding.  Pages No. 40-41 of the report summarised the results of the interim audit work and it was noted that there were no specific control issues from the work carried out so far.  The two areas considered were journal entry controls and early substantive testing.  It had been identified that journals over £10,000 were normally reviewed by the Finance Manager, however, a report was not being produced for Suspense journals so they had not been subject to normal review.  Furthermore, a report for each review was produced based on the ‘posted to’ date rather than the ‘posted on’ date so if a journal was backdated it was not subject to review.  From the early testing of fees and charges income, one issue had been found in relation to garden waste subscriptions and how income from those transactions was recognised;  revenue was recognised at the point of payment and not for the period to which it related.  The fees for the audit were set out at Page No. 44 of the report and Members were advised that they were based on rates set by Public Sector Audit Appointments Limited.

43.6           In terms of the interim work on journal entry controls, a Member questioned what happened to journals under £10,000.  Members were advised that all of the journal entries were carried out by accountants in the Finance Team, however, those over £10,000 were reviewed by the Finance Manager who stressed that there were very few journals in excess of that amount and this was simply an extra level of scrutiny.  The Member questioned what happened if an error was found in a journal and how this was reported.  The Finance Manager advised that no errors had been identified to date; all systems were balanced monthly so any issues would be flagged up at that point.  The Member noted that the report stated that journals were reviewed on an annual basis and she explained that all income came in via the income management system and was allocated a code.  If the system did not understand the income, it would allocate it to a Suspense account and Officers would move it to the correct code; these were the journals which would be looked at together at the end of the financial year.  The Corporate Services Group Manager advised that Internal Audit did quite a lot of work around journals and this was included in the Internal Audit Monitoring Report which was the next item on the Agenda.  The Engagement Lead from Grant Thornton stressed that this was a presumed risk which needed to be mitigated and the external auditors were specifically required to include audit journals each year irrespective of value and the controls put in place by Officers. 

43.7           With regard to garden waste subscriptions, the Finance Manager advised that they often generated a lot of queries with Customer Services so it was beneficial to smooth out the payments so that there was a more even spread of calls throughout the year.  The Corporate Services Group Manager indicated that this was another area which had been subject to an internal audit.  He explained that there were currently various renewal dates built into the system throughout the year with reminders sent a month before the renewal was due, during the month it was due and the month after the renewal was due.  Any non-renewals were allocated to a ‘do not collect’ list which was generated daily and issued to Ubico operatives.  However, this could cause problems as the system was reliant upon operatives using the list whilst balancing this against the need to ensure bins were emptied properly.  A recommendation had been made to review the best way forward to tighten up this control including retrieval of the bins.  One idea was to use tags to put on the bins to identify who had paid but there would be a cost to introducing this.  A Member raised concern about how this would work in practice and it was agreed that this was something which needed further consideration. The Corporate Services Group Manager confirmed that this was an audit recommendation and would be assigned to the Interim Group Manager for Environmental and Housing Services.

43.8           It was

RESOLVED          That Grant Thornton’s Audit Plan 2015/16 be NOTED.