To consider the external auditors’ Audit Findings 2016/17. 

 22.1          Attention was drawn to Grant Thornton’s report, circulated at Pages No. 27-63, which set out the audit findings for the Council for 2016/17.  Members were asked to consider the report.

22.2           The Engagement Lead from Grant Thornton explained that the report highlighted the key findings from its audit of the Council’s financial statements for the year ended 31 March 2017.  Under the National Audit Office Code of Audit 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, and its income and expenditure 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.

22.3           The Engagement Lead reported that the audit had gone well and she took the opportunity to thank the Council’s finance team for its support over the course of it. In the conduct of the audit, Grant Thornton had not had to alter or change its approach which had been advised to Members in the Audit Plan dated 13 March 2017. In terms of the financial statements opinion, no adjustments had been identified which affected the Council’s reported financial position and the audited financial statements for the year ended 31 March 2017 had remained unchanged from the draft version which had been submitted for audit. In terms of the timetable for the approval of the accounts, this had not gone well from Grant Thornton’s side and it was understood that it would need to improve to meet the statutory deadline in 2018. This was not a reflection on the Council’s finance team which was well placed to meet those requirements. Whilst the audit was substantially complete, Grant Thornton was still finalising its procedures in a number of areas including: receipt of independent confirmation of investment balances with three institutions – although Grant Thornton was comfortable that they were accurately reflected in the accounts; review of the final version of the financial statements; review of the management letter of representation; review of the revised version of the Annual Governance Statement; and update of the post balance sheet events to the date of signing the opinion. In terms of the outstanding work it was confirmed that this was standard for all Councils as there were always matters that were not completed at this point.

22.4           Referring to Page No. 32 of the report, the Engagement Lead confirmed that she anticipated an unqualified audit opinion on the financial statements with the key messages being that they were free from material error and supported by good quality working papers; that issues identified in prior years had been fully addressed and no further issues in those areas had been noted; and that Grant Thornton had always received timely responses to queries. In addition, the audit had found that the financial statements were consistent with the Council’s Annual Governance Statement and Narrative Report and that there were no control weaknesses. In terms of Value for Money, Grant Thornton was satisfied that, in all significant respects, the Council had proper arrangements in place to secure economy, efficiency and effectiveness in the use of its resources; although it was noted that there were a small number of recommendations where the Council could further enhance its financial and governance arrangements. Grant Thornton was also required to certify the Council’s housing benefit subsidy claim on behalf of the Department for Work and Pensions; at present its work on the claim was still in progress and was not due to be finalised until 30 November 2017 so the outcome of the certification would be reported to the Committee through a separate report in early 2018. A number of recommendations had been made on the work undertaken and those were set out in an action plan attached to the report at Appendix A. The recommendations had been discussed with the Head of Finance and Asset Management and his team.

22.5           The Grant Thornton Audit Manager drew attention to Page No. 35, which set out the level of materiality that was worked to, and Page No. 36, which set out any significant risks. There were no risks identified except for those noted at Page No. 39 which referred to changes to the presentation of local authority financial statements – there had been no overall material misstatement and the Council had made the necessary adjustments to the final accounts for signing. In terms of accounting policies, estimates and judgements, the assessments undertaken were all shown as green so the Auditors were happy with the policies that had been disclosed within the accounts. Referring to Page No. 42, the Grant Thornton Audit Manager drew particular attention to 5) confirmation requests from third parties. He explained that management permission had been requested to send confirmation requests to the Council’s bankers and institutions where the Council had funds invested. That permission had been granted and the requests sent but, at the time of writing the report, confirmation had not been received from all parties confirming the balances. In terms of adjusted and unadjusted misstatements, none had been identified which was a credit to the Council’s finance team. Page No. 45 set out any misclassification and disclosure changes which had seen only minor changes identified and those did not affect the financial statements. Particular attention was drawn to the fact that the Council had not revealed that the 2015/16 Comprehensive Income and Expenditure Statement (CIES) disclosure was restated on the face of the accounts as was required by the Code – this had now been addressed. In addition, a significant number of assets had been identified that had £0 balances at the beginning and end of the year; it was not clear what the Council’s policy was on identifying assets which were still in use and this needed to be considered as there was a question as to whether they should remain on the fixed asset register. Referring to Page No. 48, the Grant Thornton Audit Manager indicated that two risks identified in terms of the Value for Money conclusion were the Medium Term Financial Strategy, including the delivery of savings, and the Ubico monitoring contract. The findings had been discussed with management and a recommendation for improvement had been agreed; this meant there should be a robust process in place for the management and monitoring of contracts with third parties and that all financial information would be provided on a timely basis to allow the identification of potential overspends. Pages No. 49-53 set out the key findings against those two significant risks and the Audit Manager explained that they detailed the ongoing challenges for the Medium Term Financial Strategy – these were mainly outside of the control of the Council i.e. New Homes Bonus funding, business rates, the spending review etc. – and the monitoring of the Ubico contract – this had been flagged as part of an Internal Audit review and, although it was a single contract, it was felt that its size in comparison to the Council’s spending warranted ongoing review even though assurances had been provided that the risks had been sufficiently mitigated.

22.6           The Engagement Lead drew attention to Page No. 56 and explained that Grant Thornton was also required to confirm its final fees and to set out its proposed fees for the next year. She confirmed that there were no fees for the provision of non-audit services and the fees for 2018/19 were proposed to be in line with the scale fee set by Public Sector Audit Appointments Ltd. It was likely that, in future, the audit fees would reduce as a result of the re-tender. In terms of the grant certification fee, this could not yet be confirmed as the work would not be concluded until November; the final fees would be reported to the Audit Committee in due course following the completion of the certification work. Referring to Page No. 58, she explained that this showed how the Auditor was discharging its responsibilities in terms of communicating with the Council.

22.7           The Chair thanked the Grant Thornton representatives for their thorough presentation and expressed the view that he found it helpful that the work was linked to Key Performance Indicators (KPIs) as this was a good way of monitoring the processes going forward to ensure the actions were being delivered. He also expressed how impressed he was at the large amount of detailed work that had taken place. A Member questioned whether the introduction of Universal Credit was likely to increase the audit fees. In response, the Engagement Lead explained that the methodology would change once Universal Credit was finalised but, prior to that, the way Auditors were appointed to undertake grant certification work would change; the competitive element that would be introduced at that point would affect the fees but she could not currently say whether that would be in a positive or negative way. In terms of the three institutions with outstanding confirmation of investment balances, as identified at Page No. 31, the Engagement Lead undertook to identify which organisations they were and advise the Committee accordingly. She offered reassurance that Tewkesbury Borough Council was not the only one to have seen this issue; it was frustrating for the Auditors but not unusual. One Member questioned whether there were any key points which had been found to be satisfactory within the Key Performance Indicators on trade waste, garden waste etc. and he was advised that he would be updated following the meeting.

22.8           The Chair offered his congratulations to the finance team on a very positive report and thanked Officers for their hard work on behalf of the Audit Committee.  Accordingly, it was

RESOLVED          That Grant Thornton’s audit findings 2016/17 be NOTED.