To receive from BDO (external auditors) a report highlighting the key issues arising from the Council’s financial statements for the year ending 31 March 2017.
RECEIVED from BDO (external auditors) the Audit Completion Report on the Statement of Accounts 2016/17 and the Use of Resources.
1. The report presented BDO’s audit findings of the 2016/17 Statement of Accounts, the financial statements opinion. The report was introduced by Andrew Barnes (BDO) who highlighted:
a. Andrew Barnes gave his apologies for the late report, which was only received by the committee on Wednesday 27 September 2017 in the ‘TO FOLLOW (2)’ agenda pack.
b. Andrew went through the summary (pages 3-7 of the report) which contained all the information the Committee needed to know regarding the outstanding issues of the audit and the stage at which BDO were with resolving those issues before delivering their Audit opinion by Friday 29 September 2017.
c. The outstanding matters, when drafting the report, are listed on page 9 of the report;
· Item 1 – Information that BDO were awaiting from the Council had now been received and the issue had now been addressed.
· Item 2 –
i) Valuation of HRA assets – this issue was still outstanding. BDO had been in dialogue with the Council’s valuers for some weeks now. The latest correspondence received from the valuers still did not fully address the issues raised. BDO have now gone back to the valuers with a further follow-up query. The valuers are well aware of the time critical nature of this issue, which has still not been resolved.
ii) Creditors – This had been completed and is shown on the unadjusted area within the report.
iii) Other Disclosures – This was about wrapping up the actual Statement of Accounts document that will be published. This is a very complicated document that has a lot of manual processes that need to be changed and updated.
iv) Going Concern – This had been completed and was not an issue for the Council.
v) Pension Scheme – The Pension Fund Audit had been completed and would be published by Friday 29 September 2017.
vi) Contingencies and Commitments – BDO had some final questions regarding this item.
vii) Related Parties – This item had been completed.
viii) Laws and Regulations - This item had been completed.
ix) Review and agreement of the WGA data collection tool against the final set of financial statements – This would be done following completion of the Statement of Accounts.
· Item 3 – Clearance of internal quality control review process – This was in progress.
· Item 4 – Subsequent events review – Basic work had been done.
· Item 5 – Final review and approval of the financial statements – Review & approval by the Audit & Risk Management Committee.
· Item 6 – Management representation letter, as attached in Appendix VI, to be approved and signed.
d. Material misstatements (detailed on page 4 of the report) had all been changed and there was no overall impact on the financial position for the Council. Changes were made within the accounts. There is still one significant issue that is still unresolved and discussions are still ongoing with the valuer.
e. Unadjusted audit differences, as detailed on page 5 of the report, are immaterial and consider errors within the accounts. Due to the size of these errors and that they have not been changed in the accounts, they did not affect the audit. BDO had to draw members’ attention to these audit differences so they are happy to approve.
f. As detailed at page 6 of the report, the key matters from BDO’s audit of use of resources highlights some of the issues the Council is dealing with. BDO were satisfied these issues are all moving forward in an appropriate way and the Council were doing all it can to address those issues. They were able to give a clean use of resources conclusion.
g. As detailed on page 7 of the report, BDO’s confirmation of a clean audit opinion subject to outstanding matters as set out on page 9 of the report i.e. valuation of HRA assets and other matters BDO need to draw to the attention of the committee.
2. The following issues raised in response to the report, before the presentation of the Pension Fund Audit:
a. The Chair pointed out the issues raised following discussions about the Statement of Accounts and the fact that they would not be signed off by Friday 29 September 2017. This was totally un-acceptable to the Committee and they wanted answers to certain questions about how the external auditors (BDO) proceeded with the audit.
BDO had flagged up, 3 weeks ago, that there was an issue with the accounts, which the Chair stated was ample time to comply with the statutory deadline. The Chair also asked why BDO did not ask officers to apply certain pressures on the valuers to answer the questions BDO needed to complete the audit. The Chair was concerned whether BDO had allowed enough time and resources to complete the audit, as the deadline was known. The Council would now end up being named and shamed.
b. The response by Andrew Barnes (BDO) that the HRA valuation issues had been escalated. Discussions were had with the Assistant Director and BDO had asked him to pursue this issue with the valuers. This issue had been ongoing since mid-August and they hadn’t given BDO a satisfactory resolution to the issue despite numerous attempts.
c. The Chair also asked that if the valuers were not going to answer BDO, why other steps had not been taken. Clarification by Andrew Barnes (BDO) that they did take different avenues but that the answers received were not addressing the core of the issue and they had not been successful.
d. The Chair stated that there was a deadline and that this situation was now totally embarrassing for the whole Committee. Andrew Barnes clarified that they were also in the same position and that the best they could do, as regards the resolution of the HRA valuations/signing of the accounts, was to try and complete by next week.
e. Councillor Simon stated that the minutes ought to record the names of the firms of external valuers, that had not provided an accurate professional service. The valuers were Stratton Park. Councillor Simon also requested that Finance officers should write to the valuers making it known of the Council’s dis-pleasure that they had not provided accurate information to the external auditors.
f. Councillor Dogan suggested that the valuations issue should be flagged up with a letter to show that the valuers did not meet the required deadline. The Chair felt that it should be a joint letter between the Executive Director (Finance, Resources & Customer Services) and the Chair of the Committee.
ACTION: James Rolfe (Executive Director – Finance, Resources & Customer Services).
g. James Rolfe said that the Council had variations of these problems in previous years, not with the same consequences, as many other Local Authorities. This was relatively straight forward business for a valuation and it needs to be addressed correctly. He would therefore be taking this issue forward with CIPFA with the intention of taking it forward with the IRCS aswell.
ACTION: James Rolfe (Executive Director – Finance, Resources & Customer Services).
h. Stephen Fitzgerald (Assistant Director – Finance) would check if payment has been made to the valuers. He would also check the contract and arrangements involved with GVA (Commercial Property Agents) and Stratton Park (Valuers).
ACTION: Stephen Fitzgerald (Assistant Director – Finance).
i. James Rolfe further commented that Finance would be conducting a lessons learnt exercise internally as well. Every year, with the exception of valuations, financial processes get better and better. So financial teams could put in any further actions, that may be needed, for this year’s accounts as soon as possible.
j. The Chair reminded BDO that there would be even less time for next year’s accounts due to close down being required sooner. Andrew Barnes (BDO) clarified that they would be taking a different approach with next year’s accounts. It will be a far more automated approach with information being dragged directly out of the general ledger. This would make the process far more straightforward for the Council’s finance officers.
k. The Chair requested that BDO update her on the sign off of the accounts for 2016/17 and how the external auditors were doing. Andrew Barnes confirmed that he would update the Chair.
3. Pension Fund Report – key matters reported:
a. As detailed on page 51 of the report, the pension fund audit had now been completed.
b. There were no significant changes to what BDO had planned to do, which had been reported to the Committee earlier on in the year.
4. The following issues raised in response to the Pension Fund Audit:
a. Councillor Simon stated that he was the Chair of the Pension Investment Committee. He was happy with the bulk of the report. He referred to page 56 of the report, which detailed a review of the actuaries. Was this now a requirement of the audit reporting process to test the actuaries assumptions. Andrew Barnes clarified that this was a piece of work commissioned by PwC to review nationally all the work of actuaries and assumptions that have been applied to pension funds. BDO need to have assurance over the assumptions that have been used by the actuary to produce the numbers for the Council’s financial statements.
b. Stephen Fitzgerald also clarified that the committee were not there to justify what the National Audit Office does. There are actuary government departments which are part of the government. The National Audit Office is actually an office of Parliament and doesn’t endeavour to be joined up with government and doesn’t view itself as that, which may be an explanation of why we have this odd duplication.
5. The two letters of representation, one for the Annual Accounts 2016/17 and one for the Pension Fund Accounts would be signed off by the Chair of the Audit & Risk Management Committee and James Rolfe (Executive Director – Finance, Resources & Customer Services) at the end of the meeting.
AGREED that the Audit Completion Report on the 2016/17 Statement of Accounts for the year ended 31 March 2017 and Pension Fund Accounts be noted and approved and as a result the Council’s Financial Statement of Account be recommended for approval.