To receive a report from BDO (External Auditors) presenting the 2018/19 Audit Plan.
RECEIVED a report from BDO (External Auditors) providing the 2016/17 Audit Plan. The report was introduced by Andrew Barnes and David Eagles.
1. The 2 documents presented under this item are:
· The Council Audit Plan, as detailed at pages 1-21 of the report.
· The Pension Fund Audit, as detailed at pages 23-39 of the report.
2. The Council Audit Plan - This was the equivalent document that has been presented to the committee over the past 2 years, in terms of setting out what the key issues are that need to be addressed, as part of delivering the Council’s audit for 2018/19. The key risks to highlight to the committee are detailed on pages 11-14 of the report. BDO need to make sure that these risks are covered off and there is sufficient assurance for these during the long undertaking of completing the work.
3. Andrew Barnes (BDO) highlighted some key issues from the report:
The key risks under the Financial Statements risk area were as follows:
a. Management override.
b. Revenue recognition.
c. Property, plant & equipment, Investment properties and Surplus assets valuations and accounting.
d. Pension liability assumptions.
e. Cash flow statement and disclosure notes.
f. Group Accounting.
g. Meridian Water and other re-generation projects.
h. Consideration of related party transactions.
i. Fraud and error.
4. The key risks under the Use of Resources risk area were as follows:
a. Sustainable finances.
b. Meridian Water and other regeneration projects.
5. The Property, Plant and Equipment risk (as above 3 c.) was an area that BDO had some difficulties with last year, but have now engaged with the property team and finance team at an early stage. BDO had some feedback on the Valuation Commissioning document, that will be looked at by the valuers and a response back from the Head of Property, in respect of that.
Information from the valuers, as regards the 2018/19 closure of accounts, will be challenged by the property team to ensure they are satisfied, that it has been done robustly and explanations are provided. This should make the process work more smoothly this year.
Because of the nature of the Council’s financial statements, which includes more than a £1 billion worth of assets on its balance sheets, there is a potential areas for it to be wrong and BDO would have to look at this area more closely.
6. The following issues raised in response to the Council Audit Plan:
a. The Chair asked how BDO would test a sample of fees and charges. Andrew Barnes clarified that 2 key areas are checked in respect of revenues:
· Complete Revenues – To make sure the Council have captured what they are due.
· Existence Revenue – To make sure items are reflected in the statement of accounts, making sure the reason that has been reflected is genuine and there is genuine monies behind that.
b. Councillor Dogan, in respect of the revenue recognition risk, wanted to know further about the testing of a sample of fees & charges and if BDO had re-visited the materiality levels to see if they were ok. Andrew Barnes clarified that the materiality levels had not been looked at because the tests had not been carried out as yet. Once BDO have their planned materiality level, based on their expectation of where it would end up and the financial statements, they would see where that is.
c. Councillor Dogan, in respect of the consideration of related party transactions risk, asked if Companies’ house was used to check for transparency regarding disclosure of related party transactions. Andrew Barnes clarified and confirmed that they did.
d. Councillor Savva mentioned that there was a lot of expenditure regarding the Meridian Water Development, but was there any income coming into the Council from the development. James Rolfe clarified that the Council did have some income coming in on a couple of sites on the Meridian Water development. However, much of that income was being spent on dealing with travellers. This was a borough wide and London wide problem. The Council had spent approximately £0.5 – 1m just dealing with travellers over the last year. They would also be looking at the other pieces of Meridian Water acquired land to see what opportunities there are in raising income before construction starts on new homes.
The money spent on dealing with the travellers included the installation of physical barriers and to let out property as soon as the Council acquires them. There is also a borough wide injunction in place which prevents travellers from fly tipping and giving the Council more legal powers.
e. The Chair asked if the Council had thought about providing a permanent travellers site in the borough, which some London Councils do. James Rolfe explained that this had been looked at in the past and was opportune to be looked at again.
7. The Pension Fund Audit – The Pension Fund plan followed a similar report format to the Council Audit plan. The key audit risks to highlight to the committee are detailed on pages 31-35 of the report.
8. Andrew Barnes (BDO) highlighted and clarified the key issues from the Financial Statements risk area, as follows:
a. Management override
b. Revenue recognition
c. Fair value of investments (infrastructure & private equity)
d. Fair value of investments (other)
e. Investment management expenses
f. Membership Disclosure
g. Consideration of related party transactions
h. Pension liability assumptions
i. Fraud and Error
9. BDO had also been working with the Pension Fund finance team who have changed their arrangements for 2017/18, and now have a sole custodian where investment funding is channelled through. There used to be 25 different investment managers the Council utilised, but there is now only one custodian, who operates on behalf of the council, whereby everything is now funded through. This has speeded things up significantly. The team have been having trial close down of accounts through the year and getting their routines far more slick in terms of how quickly they can close down.
10.The Chair reported that Councillor Toby Simon (Chair – Pension Board) had seen the plan and was happy with it.
11. The Chair thanked BDO for their informative report.
AGREED that the External draft Audit Planning Report submitted by BDO for 2017/18 be noted and endorsed by the Committee.