Agenda item

To receive an update report from Deloitte on the audit for the year ended 31 March 2020.

Ms Nicola Wright, Audit and Assurance Partner, Deloitte presented an interim report in relation to the 2020 external audit of the Council. She advised the Committee that Deloitte was not yet in a position to sign the Statement of Accounts, stating that as the audit had been carried out remotely due to the pandemic restrictions in place a number of challenges had arisen in completing the work. A further barrier in the completion of the audit was cited as workload capacity, of both the Council’s finance team and the external auditors.

Ms Wright identified that good progress had been made and drew Members’ attention to the outstanding areas as reported, updating the Committee to advise that the pension liabilities query had now been resolved. She summarised the difficulties encountered with regards to queries around capital accounting, noting that work was still outstanding in a number of the identified areas. Furthermore, Ms Wright advised that additional work had been required as a direct result of Covid-19, namely the examination of whether the pandemic had impacted the valuation of certain assets, in particular the value and expected revenue from a number of the Council’s subsidiary companies. Of particular concern to Deloitte was the inclusion of material uncertainty clauses which had been added by the Council’s valuers to their year-end valuations and as a result Ms Wright explained that an ‘emphasis of matter’ statement would be included within the audit opinion. The area of long-term debtors was also highlighted as requiring further exploration, with Ms Wright reporting that additional assurance had been sought regarding the Council’s assessment of the recoverability of outstanding loans.

Ms Wright identified the four areas of significant risk as Completeness of accrued expenditure; Property valuations; Pension liabilities and Management override of controls and provided a summary of the findings in relation to each area.

In relation to the Value for Money (VfM) external audit opinion, Ms Wright reported on the risks identified and advised that due to the Ofsted inspection rating of ‘Inadequate’ received by Children’s Services following its inspection in 2018, a significant VfM risk had been identified over the delivery of the improvements required. She went on to note that monitoring reports had acknowledged the progress made by the Council in reshaping its Children’s Services but that a number of areas still required improvement.

Mr Steve Thompson, Director of Resources acknowledged that the audit was currently a work in progress and agreed with Ms Wright’s assertion that 2020 had been a difficult year which had been reflected in the government’s delay of the accounting deadline from July 2020 to November 2020. He reported that despite these difficulties, the draft statement of accounts as prepared by the Council had been completed in accordance with the original timetable. In response to the concerns raised regarding the Council’s financial sustainability, Mr Thompson informed the Committee that financial reports had been prepared and made publicly available at month two and that this data had included details of the Council’s eight wholly owned companies in addition to the Council’s direct financial reporting. With regards to the issues raised of property valuations, equipment and pension liabilities, Mr Thompson identified that additional services had been commissioned from independent professional valuers, yet despite these assurances the audit continued to raise ongoing questions over valuations.

The Committee questioned whether the external audit team would have sufficient resources to complete its work in order to meet the reporting deadline for the next Audit Committee meeting on 21 January 2021. Ms Wright responded to advise that due to the Christmas break and the need for colleagues to take leave during that period, the audit timetable would need to be reviewed to accommodate such absences. She highlighted that a number of issues still needed to be concluded before the audit could be completed and that her team would be working with the Council to endeavour to finalise the accounts as soon as possible. In response to a question over whether a cut off point for audit queries would be agreed, Ms Wright advised that whilst the audit needed to be undertaken in a timely manner it was a priority for the work to be completed to a high quality to ensure that the accounts were true and fair.

With regard to the VfM risk relating to the Ofsted findings, the Committee questioned whether the Commissioner’s feedback would be taken into consideration by the external auditors when forming the opinion and whether other local and national evidence would be included in the audit. Ms Wright acknowledged that Children’s Services was a challenging area to review as part of the audit and clarified that the guidance around the VfM opinion focused upon publicly available information about the service, citing the Ofsted inspection as an example. Until such a time as a re-inspection had been undertaken, Ms Wright stated that the associated risk of the original findings could not be removed.

The Committee queried whether the delays in the completion of the audit would result in any financial consequences affecting the agreed fee to Deloitte. Ms Wright advised that due to the additional procedures and the increased volume of work an increase in cost would be inevitable. Initial discussions had been held with Mr Thompson and Ms Wright suggested that further discussions be held with Members of the Audit Committee also in attendance. The Committee raised concerns over the potential increase to the external audit fee, noting that the longer the work continued, the greater the anticipated increase would be. Clarification was sought of the precise work that had been undertaken to warrant the additional days. Ms Wright reported that a detailed record of all work undertaken was maintained in order to ensure that all additional fees could be evidenced.

Further questions were raised regarding the Council’s employment of a professional valuation service, with Members questioning whether this was a worthwhile expense if the external auditors did not accept the figures provided by them. Ms Wright identified the valuations as a worthwhile starting point but advised that the external auditors would continue to question and challenge the methods used to reach the valuation figures as part of the audit process.

In relation to the role of the Audit Committee, Ms Wright was asked to identify any core areas of concern that the external auditors wished to make Members aware of. One such area raised by Ms Wright was whether the Council’s finance team had capacity to appropriately review the capital accounting function so that issues could be potentially identified and rectified prior to being reviewed as part of the audit. In addition, she advised that robust internal work around valuations and assets would be beneficial.

Committee Members offered to attend any additional meetings required to help ensure that the January 2021 deadline could be achieved, a suggestion which was welcomed by Ms Wright.