Agenda item

To consider the external auditor’s Audit Plan 2016/17.

46.1           Attention was drawn to Grant Thornton’s Audit Plan 2016/17, circulated at Pages No. 22-42, which set out the Audit Plan for the year ended 31 March 2017.  Members were asked to consider the information provided.

46.2           The Engagement Lead from Grant Thornton explained that the Audit Plan outlined the planned scope and timing of the audit which allowed Grant Thornton to discharge its responsibilities under the Code of Audit Practice, issued by the National Audit Office, in terms of giving an opinion on the Council’s financial statements and specific responsibilities around the value for money conclusion.  Pages No. 25-26 of the report gave a high level overview of the key areas which had been considered in understanding the challenges faced by the Council and identifying key risks.  The ongoing financial challenges, particularly in terms of the delivery of the Medium Term Financial Plan, had been well documented and there had been a lot of conversations around continuing business rates appeals and the impact of the Autumn Statement.  In terms of financial reporting, the most significant change to the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice 2016/17 was a presentational reporting requirement which aimed to try to tell the story better in terms of how organisations reported financial outturns to stakeholders and relevant readers of the accounts.  It was also necessary to restate the accounts for the previous year.  Members were reminded that the Accounts and Audit Regulations 2015 required Councils to bring forward the approval and audit of the financial statements to 31 July by the 2017/18 financial year and a dry-run was being carried out this year to ensure that both the Council and Grant Thornton were prepared for the earlier timeframes.

46.3           Members were advised that the concept of materiality was applied when performing the audit so Grant Thornton did not look at every single transaction.  Materiality was risk-based and required a professional judgement to be made in the context of Grant Thornton’s knowledge of the Council.  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 £707,000, or 2% of the gross revenue expenditure.  Any adjustments over and above £35,000 were referred to as ‘trivial’ matters but still needed to be stated in the accounts.  The Engagement Lead explained that this would be kept under review and she would report back to the Audit Committee meeting in July if necessary.  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. 26 of the report.  Page No. 27 of the report set out the significant risks that had been identified for the audit.  There were two presumed significant risks that were applicable to all audits under the accounting standards: that the revenue cycle included fraudulent transactions and management over-ride of controls.  Two other significant risks had been identified: fraudulent transactions in the expenditure cycle and the valuation of the pension fund net liability and the details were set out at Page No. 29 of the report.  Other key risk areas included operating expenses - specific work would be carried out to ensure that expenditure was not being underestimated in this area - and employee remuneration which was a key item of expenditure for the Council.  Page No. 30 of the report referred to the specific risk around the new requirement of the CIPFA Code of Practice and the specific work in terms of the restatement of the previous years’ figures in order to comply with the new requirements.  The Finance Team had already prepared the statements and shared these with Grant Thornton.

46.4           The scope of the value for money conclusion had changed and the table at Page No. 32 of the report set out the three sub-criteria.  The main risk was the Medium Term Financial Strategy and the ongoing challenge of delivering the savings plan over the next couple of years, particularly given the continuing reduction in central government funding and the need to find alternative strategies in terms of income sources.  Members had considered the Ubico contract monitoring arrangement at the last meeting of the Committee and, given the concerns raised following the outcome of the internal audit work, Grant Thornton wanted to understand how the Council was working with partners to address this.  This linked to the sub-criteria around the Council’s arrangements for working with third parties effectively to deliver services.

46.5           It was noted that Grant Thornton had carried out an interim visit to the Council and the early findings from the interim audit work were summarised at Pages No. 36-37 of the report.  A high level overview of internal audit’s overall arrangements had been undertaken which had given assurance that it provided an independent and satisfactory service to the Council.  In terms of entry level controls, a review of the assurance framework and risk management arrangements identified that the risk registers were not being sufficiently reviewed on a regular basis.  This had been included as a recommendation in the action plan and it was understood that a piece of work was being carried out to address this.  The audit timetable was set out at Page No. 38 of the report and the fees for the audit could be found at Page No. 39; these were based on rates set by Public Sector Audit Appointments Limited.

46.6           In terms of operating expenses, which had been identified as a ‘reasonably possible risk’, a Member noted that the risk related to year-end creditors and accruals not being recorded and he questioned how this was tested.  Members were advised that it would be necessary to look at what had been paid by BACS in the first few months of the financial year 2017/18 and to check that these payments had been properly accounted for in 2016/17 under the accrual process.  Another Member sought clarification as to why it was necessary to restate the accounts for 2015/16.  The Engagement Lead explained that, under the accounting standards, it was necessary to have comparable information and the previous years’ figures had to be restated alongside the current figures in order to allow this comparison to be made.  This was a presentational change which would mean that the information would be more in line with how it was received internally and would therefore be more relevant to the authority.

46.7           With regard to the Medium Term Financial Strategy, a Member went on to question how further income generation opportunities would be identified.  The Engagement Lead explained that this risk specifically related to the robustness of the Council’s financial plans.  Grant Thornton did not consider the details; rather it sought assurance that the Council was actively looking at ways to deliver services more effectively, or options for generating additional income, in order to mitigate the gap in funding.  Tewkesbury Borough Council had a RAG (Red, Amber, Green) rated savings plan and Grant Thornton focused on the likelihood of the new income streams coming to fruition, for example, if the savings plan said that an income source would generate £200,000 then Grant Thornton would be looking for the substance behind that and “stress-testing” the plans to make sure they were realistic.

46.8           Having considered the information provided, it was

RESOLVED          That Grant Thornton’s Audit Plan 2016/17 be NOTED.