Meeting documents

To consider the attached report.

Contact Officer:  Nuala Donnelly (01296) 585164

The Committee received a report summarising the auditors findings from the 2018-19 audit which had been substantially completed.  The external auditors apologised and explained that due to a number of factors the audit of the accounts had been undertaken later than required by law and this in turn meant they were being submitted to Members for final approval later than in previous years.

Subject to the satisfactory completion of the outstanding matters listed in the auditors’ report, it was expected to issue an unqualified audit opinion on the financial statements as soon as possible, although this would be after the 31 July 2019 deadline.  The auditors had not identified any matters on the arrangements to secure economy, efficiency and effectiveness in the use of resources that needed to be reported to the Committee.  The report highlighted the following key findings:-

(i)            Scope Update – the audit had been carried out in accordance with the scope and approach that had been reported to the Audit Committee on 28 January 2019.  The planned materiality assessment had been updated based on gross expenditure on provision of services and was £2.14m (Audit Planning report - £2.29m).  This resulted in updated performance materiality, at 75% of overall materiality, of £1.6m, and an updated threshold for reporting misstatements of £107,000.

(ii)           Status of the Audit – at the time of issuing the Committee report the audit had been substantially completed and that subject to the satisfactory completion of the following items, it had been expected that an unqualified opinion on the Council’s financial statements would be issued:-

·                     Valuation of property, plant and equipment – specifically relating to the valuation methodology applied to Community Centres.

·                     Review of the final version of the financial statements.

·                     Completion of the post balance sheet event review.

·                     Receipt of the signed management representation letter.

At the meeting the Auditors confirmed that the work had been completed and they were now in a position to issue their audit opinion.

(iii)          Audit Differences – three unadjusted audit differences had been identified in the draft financial statements that management had chosen not to adjust.  Where these differences were not corrected the rationale for not doing so would need to be approved by the Audit Committee and then included in the Letter of Representation.  These related to the maximum impact of GMP equalisation on the pension liabilities, the estimated / actual plan assets of the pension fund, and a re-statement of the prior year accounts for changes to the group consolidation

The auditors informed Members that the Council was in the process of updating the valuations associated with community centre assets.  EY specialists had reviewed the methodology and had concluded that the assets as valued were under-valued using an Existing Use Value (EUV) methodology.  The Council’s external valuer had provided updated valuations using a depreciated replacement cost methodology.  This resulted in a material change, details of which were explained to the Committee.

(iv)         Areas of audit focus – the audit report identified key areas of focus for the audit, setting out observations and conclusions including areas which were either conservative or where there was a potential risk and exposure.  There were no matters apart from those already reported to Members that needed to be brought to Members’ attention.

(v)          Control Observations – a fully substantive approach had been adopted, so the operation of controls had not been tested.

(vi)         Value for Money –  while the Audit Planning Report had not identified any significant risks around the criteria for the Audit Planning Report, one potential significant risk had been identified in relation to the Council’s capacity to manage its operations as well as planning a smooth transition to the new Council.  There were no other matters to report about the arrangements to secure economy, efficiency and effectiveness in the Council’s use of resources.

(vii)        Other reporting issues – the Annual Governance Statement had been reviewed for consistency and the auditor’s knowledge of the Council.  There were no matter to report as a result of this work.  There were also no issues to report following work carried out, as required by the NAO, on the Whole of Government accounts.

(viii)       the auditors had reported that there were no relationships from 1 April 2019 which might be reasonably thought to bear on their independence and objectivity.  The auditors had not undertaken any non-audit work outside the NAO Code requirements.

The audit report also contained areas that had been the focus of audit work.  The audit findings also included a number of appendices which Members considered as part of their deliberations:-

·                    Appendix A – Required communications with the Audit Committee.

·                    Appendix B – Management Representation letter.

Members sought additional information and were informed:-

·                    that the Community Centre assets had been valued for the previous 3 years using a depreciated replacement cost methodology.

·                    that the names of individual staff would be redacted from future reports, which had been the usual practice in the past.

·                    with a detailed explanation of the reasons why this year’s audit had not been carried out to allow the final audit results to be reported to Members by 31 July.  EY had taken the decision not to undertake the audit until September.  EY had also needed to engage internal specialist in relation to the valuations issue which had also caused a delay.

RESOLVED –

(1)          That the matters raised in the external auditors’ report and raised by the auditors at the meeting be noted.

(2)          That Finance staff and the external auditors be thanked for their work in preparing and auditing the financial statements for 2018-19, particularly as there had been a number of planned audit work timing issues this year

(3)          That the Letter of Representation and associated schedule be agreed, and the Chairman of the Audit Committee be approved to sign it off on the Committee’s behalf.