Agenda item

To consider the external auditors’ Audit Findings 2017/18. 

9.1             Attention was drawn to Grant Thornton’s report, circulated at Pages No. 23-47, which set out the audit findings for the Council for 2017/18.  Members were asked to consider the report.

9.2             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 2018 and its review of the Council’s value for money arrangements.  Under the National Audit Office 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 its financial position and income and expenditure for the year, and whether they had been prepared in accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) code of practice on local authority accounting and the Local Audit and Accountability Act 2014.  It was noted that the timetable for the preparation of the accounts had been brought forward considerably compared to previous years – in the past the accounts were provided at the end of June following which they were audited and brought to the Committee in September whereas this year they had been reviewed at the end of May. She was pleased to report that the audit was substantially complete.  At the time of writing the report, there were a few areas where work was ongoing; one area, in relation to the work on the Council’s valuation of its Property, Plant and Equipment (PPE), was not fully concluded but it was hoped this would not give rise to any significant issues.  She explained that Grant Thornton was making enquiries about the underlying assumptions made by the valuer to ensure it was comfortable with the approach taken – the assumptions had changed compared to the previous year and a number of local authorities used the same valuer so this was being considered across the board. This matter was expected to conclude within the next few days with a view to issuing the opinion by the statutory deadline later in the month.  Therefore, the final sign-off on the opinion was subject to the resolution of the remaining queries with the valuation.  The Engagement Lead from Grant Thornton wished to record her appreciation to the Finance Manager and her team for the preparation of the accounts and, subject to the outstanding queries being satisfactorily resolved, she anticipated issuing an unqualified audit opinion on the financial statements.  There were no material issues in the accounts which needed to be brought to Members’ attention.

9.3             In terms of the value for money conclusion, one main area of risk had been identified from the audit plan in relation to the Council’s arrangements in respect of the preparation of its Medium Term Financial Strategy (MTFS).  This was set out in detail at Pages No. 36-38 of the report.  The latest version of the Council’s MTFS had been reported to Members on 5 December 2017 identifying a £2.99M funding gap over the five year period of the MTFS 2018/19 – 2022/23.  In establishing what arrangements were in place to bridge that gap, it was clear that many were out of the Council’s control as they were dictated by funding from central government e.g. reliance on New Homes Bonus; this was something which had been explored with the Committee in previous years.  It was important that Grant Thornton was satisfied that the Council had clear plans for how it could bridge the gap and had agreement from Members as to where future savings could be made.  The Council’s savings plan was in development therefore it was not possible to confirm that those plans were in place.  Officer had stated that the plans were being developed and this would continue over the summer period.  On that basis, the conclusion on the value for money arrangements was ‘acceptable’ as it was not possible to conclude that the savings plan was sufficiently developed.

9.4             Several Members raised concern over the value for money conclusion.  A Member noted that the process for signing off the accounts had been brought forward and therefore it was out of sync with the Council’s previous system for identifying savings.  Whilst she felt Officers should have brought this forward, she would also have expected to see some sort of confidence statement from Grant Thornton – given the Council’s previous good performance – to recognise that a reason had been identified for the delay in producing the savings plan.  In not doing so, she felt there may be a risk to the Council’s reputation which would be unfair, given the circumstances.  The Engagement Lead from Grant Thornton indicated that the quick wins and easy options had already been delivered so it would only get harder in terms of identifying further potential savings.  It was not for the external auditors to determine how the Council would make savings and, whilst Officers could present options, Members could decide whether to accept all, or none, of these.  The Member reiterated that there had been a change this year in terms of the timetable and she felt that could have been reflected in Grant Thornton’s report in recognition of that.  The Engagement Lead indicated that she would be very happy to make that revision to the wording to recognise the previous track record of the Council; however, it was difficult to make a comment on a forward-looking aspect that had not been subject to consideration by Members of the Council.  She pointed out that the information was already in the public domain in terms of the presentation of the MTFS and, although she absolutely agreed that management was working hard to look at the options, there were some difficult decisions to be made.

9.5             In terms of the timetable, the Head of Finance and Asset Management advised that the MTFS had been presented to Council in December highlighting the deficit and the initial savings plan, following which, the detailed budget and savings plan for the following year was approved in February.  The future budget and MTFS was then considered over the early part of the summer and the indicative plan for the next 12-18 months was made into a more detailed plan.  The development programme needed to be brought forward to earlier in the year and it was intended to do this in April/May going forward so that Grant Thornton could have a worked-up version which had high-level buy-in from Members to give assurance that a robust plan was in place.  In terms of this year, Officers were working on the MTFS for December and the detailed budget for February, as would normally be the case.  Years three, four and five of the MTFS would still be indicative but the detail would now cover a 24 month period, as opposed to 12 months.  It was noted that, if the detailed savings plan was to be developed in April/May in future, care would need to be taken in 2019 in terms of what information could be presented to Members and shared with Grant Thornton due to Borough Council Elections.  He clarified that the savings programme would be considered by the Transform Working Group over the summer and autumn before being presented to the Executive Committee and Council.

9.6             In response to a query regarding reliance on New Homes Bonus, the Head of Finance and Asset Management explained that this comprised £2.6M of the base budget.  Whilst it was not for Grant Thornton to decide how much New Homes Bonus was used each year, the worry for both Officers and Grant Thornton was the uncertainty of this income stream.  It was important to ensure the Council did not rely on this too much, which was difficult given other cost pressures and reduced funding streams.  At the moment, he was confident that the Council had a buffer of approximately £600,000 to deal with any cuts this year.

9.7             The Audit Manager from Grant Thornton went on to advise that Pages No. 29-30 of the report outlined the significant audit risks reported in the plan earlier in the year and the work that had been carried out against them; these included improper revenue recognition; management override of controls; valuation of PPE; and valuation of pension fund net liability.  Reasonably possible audit risks were set out at Page No. 31 of the report and included employee remuneration and operating expenses.  All areas had been assessed as ‘green’ and were in accordance with the Code.  Other communication requirements were set out at Pages No. 33-34 and included the standard letter of representation, due to be considered later in the meeting.  Page No. 41 set out the value for money approach and it was noted that the Council had put in place a number of processes to address the key risks in respect of the Ubico contract; this was now complete and was no longer a risk.  The review of the Corporate Risk Register was ongoing and had been deferred several times so this was an outstanding item on the work programme.  Based on the review of the draft financial statements received for audit and the outcomes of the work to date, Grant Thornton was satisfied with the quality of the financial statements prepared, and that they had been subject to appropriate review, so this had been agreed as complete.  The audit adjustments were set out at Page No. 42 of the report and included a number of errors which had been amended in the final version of the accounts, namely, Note 31 – Officer remuneration – where there had been a transposition error between the comparators for the five years which had now been updated; and Note 33 – Grant Income  - which had included a number of errors in the underlying data and one grant that had been missed from the totals.  Two accounting policies had accidentally been omitted from the draft which had now been included and there had also been several amendments to spelling and grammar etc.  The audit fees were unchanged from what had been reported in the plan and the audit opinion was outlined in the Appendix to the report.

9.8             A Member noted from the Minutes of the previous meeting that Grant Thornton intended to challenge the assumptions around investment property and the Engagement Lead from Grant Thornton explained that the Minutes related to the Audit Plan for 2017/18 - at that stage, Grant Thornton was setting out the work it intended to do around PPE and investment properties.  The current report reflected what had actually been done and she confirmed this had been addressed, albeit with a few ongoing enquiries with the valuers to understand the rationale behind the changes from the previous valuation and ensure it was still reasonable.  The Member questioned whether any assumptions had been made to forewarn Members of a possible future shortfall in income and the Engagement Lead advised that Grant Thornton would pick up whether there was a programme in place to cover deficits; it did not to look at future projections on investments and properties. 

9.9             It was

RESOLVED          That Grant Thornton’s audit findings 2017/18 be NOTED.