Agenda item

To consider Deloitte’s Governance Report and the audited Statement of Accounts for 2019/2020.

Councillor Galley, Chair asked the Committee to consider how the external auditors, within their report, had identified and evidenced that the Council was a sustainable organisation. In order to reflect fully on the information contained within the external auditor’s report and the Statement of Accounts, Councillor Galley suggested that the Committee consider them in four parts:

·       Summary of the risk and assurance elements as identified within the Statement of Accounts;

·       Discussion around the external auditor’s issues surrounding Blackpool Transport Services Limited;

·       Consideration of the external auditor’s update regarding the ISA 260 and identification of any outstanding issues before deciding whether the Committee was in a position to approve the Statement of Accounts;

·       Discussion of the future working relationship with the external auditors.

Mr Steve Thompson, Director of Resources provided a summary of the chronology of the audit of accounts, noting that closure of the accounts for 2019/2020 had been achieved by 31 May 2020, with a provisional outturn being reported to the Executive on 15 June 2020. Mr Thompson informed the Committee that the provisional outturn had showed a loss of £5.8 million which had since been confirmed within the Statement of Accounts being considered by the Committee. He reminded the Committee that the Statement of Accounts provided a snapshot as captured on 31 March 2020, but noted that the Covid-19 pandemic had impacted upon the accounts particularly across areas focused upon by the external auditors, with those being around valuations of property, plant and equipment as well as of the pension fund. Mr Thompson noted that the primary focus over the year had been on addressing the consequences of Covid-19 as well as overseeing the financial management of the Council and of ensuring the financial sustainability of its wholly owned companies. He reported that the Council had identified a budget-saving target of £14 million during 2020/2021 and was on target to successfully achieve this.

The Committee was informed that the negative financial impact of the pandemic on other Councils via losses experienced by their wholly owned companies had been identified early on in the Covid-19 response and as a result the decision had been taken to consolidate the position of Blackpool’s wholly owned companies within the Council’s financial monitoring at an early stage. With regards to the future sustainability of the Council, Mr Thompson asserted that it was difficult to ascertain sustainability based purely on one year and that it was more useful instead to consider trends over a longer period of time, but reported that overall the Council’s levels of reserves remained within the mid-division with the working balances forecast at £11.4 million and earmarked reserves at a minimum of £21.4 million. With reference to the reported balance sheet, Mr Thompson highlighted to Committee Members that the net value of the Council stood at approximately £244 million.

Mr Thompson noted the growing systemic failings of local government finance, as evidenced by the nine local authorities facing budget deficits and seeking capitalisation directives from the government, but noted that many other elements needed to be considered in addition to the Council’s accounts in order to measure financial sustainability, such as the monitoring systems in place, the quality of the finance function within the authority and the levels of training and development for both officers and elected Members. Mr Thompson made reference to previous provisions of four year local government financial settlements which had more recently been replaced by one year settlements that had also being confirmed later in the year, creating an element of uncertainly around long term financial planning.

With regards to the balance sheet, the Committee questioned whether reported movements in investments and borrowing had been consistent with the Council’s treasury management policy. Mr Thompson advised that the balance sheet demonstrated very little movement over the year with regards to investments made via the treasury management system as investments would largely be recorded as regeneration acquisitions rather than cash investments. In relation to borrowing, he confirmed that as reported via the Financial Resilience Index, the Council was in the mid-division in terms of levels of borrowing.

The Committee questioned whether the levels of useable reserves were robust enough to deliver the Council’s future policies and to provide resilience for anticipated future reductions in funding. Mr Thompson advised that the Council’s useable reserves would be split between revenue and capital, with capital reserves only being available for capital expenditure. With regards to revenue reserves, a target for working balances had been set at £6 million to provide a sufficient buffer for any in-year funding volatilities.

The Audit Committee extended its thanks to Mr Thompson and the whole of the finance team for all the hard work they had undertaken, both during and prior to the Covid-19 pandemic.

The Committee then went on to consider the external auditor’s ISA 260 report and in particular with regard to Blackpool Transport Services Limited. Councillors Galley and Burdess both declared a prejudicial interest in relation to the reference to Blackpool Transport Services Limited within this report and as such left the meeting at this juncture for the duration of the discussion. Councillor Critchley as Vice-Chair took the Chair.

Ms Nicola Wright, Audit and Assurance Partner, Deloitte referred the Committee to page 288 within the external auditor’s report which commented on the valuation of Blackpool Transport Services Limited (BTS). She informed the Committee that the Council had engaged a third party external valuer to provide valuations for the Council’s subsidiary companies for inclusion within the balance sheet. Further to this, Deloitte had engaged an internal specialist to challenge three of the valuations as included by the Council. Two of the valuations fell within the accepted range as identified by Deloitte, but for the valuation of BTS, Deloitte’s team challenged the methodology used to reach their figure and as such the valuation fell outside their accepted range. As a result, Deloitte had proposed an adjustment to the financial statement to reflect the reduced valuation of BTS, but Ms Wright highlighted to the Committee that the figure was not sufficiently significant to be imposed on the accounts but instead could be reported as an adjusted item with no change necessary to the balance sheet. Following consideration of the valuation figures and variances by the Committee, Ms Wright confirmed that the proposed adjustment represented no material consequences to the Statement of Accounts or any threat to the future sustainability of the Council and as such was happy for the Council’s valuation figure to remain within the accounts as the adjustment had been brought to the Audit Committee’s attention.

The Committee sought Mr Thompson’s opinion of the adjustment. He advised that professional independent valuers had been commissioned by the Council and as such he trusted the valuation as included within the accounts.

[Councillor Galley rejoined the meeting and resumed the position of Chair.]

Ms Wright provided a summarised overview of the external auditor’s report, highlighting that work had focused on ensuring that the financial statement was as complete as possible, working with the finance team on a number of required adjustments. She reported that Deloitte were now happy that the accounts were materially correct, but reported that version checks on the notes attached to the final report were still required in order to ensure these had all been updated correctly. With regards to the capital accounting adjustments within the accounts, Ms Wright highlighted a recommendation regarding review processes and the finance team’s capacity to undertake all the necessary elements to ensure completion of the accounts for the following year.

In relation to the Significant Risks as outlined within the report, Ms Wright summarised Risk 1 ‘Completeness of Accrued Expenditure’ and assured the Committee that following testing of controls, no material amendments to the accounts had been identified. With regards to Risk 2 ‘Property Valuations: Material Uncertainty due to Covid-19’ she drew Members’ attention to the inclusion of an ‘emphasis of matter’ within the audit opinion due to uncertainty over the valuation of the property portfolio as a result of the impact of the Covid-19 pandemic. Ms Wright summarised Risk 3 ‘Pension Liabilities’, highlighting that the pension assets and liabilities as included within the financial statements had required assurance from the pension fund auditors, who had included an ‘emphasis of matter’ in their audit opinion but that Deloitte did not consider it necessary to include an ‘emphasis of matter’ within their audit report and had no further matters to report around pension liabilities.  The final significant risk had been identified as ‘Management Override of Controls’ and Ms Wright reported that following testing, no significant issues had been identified in relation to the risk area.

[Councillor Burdess rejoined the meeting.]

Ms Wright highlighted other areas of focus from the audit, which included long term debtors and investments in subsidiaries. In relation to the Value for Money (VfM) risks identified by the audit, she reported that due to the ‘Inadequate’ Ofsted rating issued to Children’s Services in January 2019, Deloitte still considered there to be a significant VfM risk in relation to Children’s Services for 2019/2020 around the delivery of the improvements required as a result of the Ofsted report.

The Committee sought clarification that there were no outstanding issues which would have a material impact on the Statement of Accounts. Ms Wright confirmed that she had no expectation that there would be any material changes to the Statement of Accounts as presented.

The Committee noted a forecast gap of £7.9 million and questioned whether this represented any threat to the Council’s financial sustainability. Ms Wright reported that reviewing the Council’s management of the gap was of more concern to the external auditors and that in this case it had not been considered significant enough to affect the VfM opinion.

With regards to future statutory deadlines and anticipated changes resulting from the Redmond Review, the Chair proposed that a meeting be held with Ms Wright and Mr Rayner from Deloitte, Mrs Greenhalgh, the Chair and Vice-Chair of the Audit Committee and the Director of Resources in order to discuss future working relationships going forward.

Resolved:

1.     To note the External Auditor’s Report to those charged with Governance (ISA 260) for 2019/2020;

2.      To approve the Statement of Accounts for 2019/2020 subject to no material changes resulting from the outstanding work still to be completed. Should any material change become apparent, the Committee would defer the agreement of the accounts to the next meeting of the Audit Committee on 29 April 2021;

3.      That a meeting be held with Ms Wright and Mr Rayner from Deloitte, Mrs Greenhalgh, the Chair and Vice-Chair of the Audit Committee and the Director of Resources in order to discuss future working relationships going forward.