Agenda item

BDO - UNAUDITED STATEMENT OF ACCOUNTS 2018/19 - VERBAL UPDATE

To receive from BDO (external auditors) a verbal update on the draft Statement of Accounts 2018/19.

Minutes:

RECEIVED from BDO a verbal update on the unaudited statement of accounts 2018/19.

 

NOTED

 

1.    The update was introduced by David Eagles (BDO).

2.    Pension Fund – BDO were virtually complete with this work. There were still some residual issues, but which are nearly complete. However, BDO were still having to deal with issues relating to the McCloud judgement. The judgement related to the governments change to pension schemes with a landmark ruling that pension reforms discriminated against younger workers by protecting the retirement benefits of older staff. This was an issue being judged for judges and firefighters. However, it is expected to extend to the rest of the public sector aswell.

This equates to some extra costs for the council and that there will have to be an adjustment for a calculation for whether there needs to be an adjustment to the accounts based on that. Paul Reddaway clarified that there was an agreement with BDO that the council would change the accounts and reverse the actuary back and recalculate the pension liability so as not to hold up the accounts in any way.

3.    The main Council Accounts – David Eagles provided a short analogy on how BDO were dealing the 2018/19 accounts audit. Finance officers were a team of skilled experienced builders and the BDO team were electricians. A lot of planning had been done to get the teams to work together to finish the project.

Both teams had planned to have a complete set of walls in place by the beginning of June, so that the electricians can come in and complete wiring up. The electricians have had a chance to do some testing on the walls to make certain that they are the right size and in the right place. In order that they can come in and do a clean job with the wiring up.

What had happened, partly because of delays of materials coming through to the builders, in terms of valuation reports not coming through on time is that when BDO came in at the beginning of June 2019, not all the walls were built. So, there was a lot of frantic work done to get those last things put together.

In specific terms, the first set of accounts BDO had at the beginning of June did not include the group accounts. That was produced by the 10 June 2019. Initial assessment work from BDO’s side on the preliminary review identified a grossing up issue whereby some costs had been double counted. That has been adjusted down by £100m which has had a big impact on some of the figures that are used for their audit.

There have been delays in getting valuation reports through even after we had all planned to make certain these were available for BDO’s interim work but they had not come through for the interim phase.

Some of the documents that had come through have not been what was expected. For example, Meridian Water valuations had been done based on industrial use but BDO were expecting it on residential basis as it had been last year and issues with decanted housing assets.

Some testing had been done on the information received from the valuers, however, some of the figures didn’t seem right.

BDO have a real challenge to get things finished. They know what they need to focus on but are still waiting for some answers which they have not received.

BDO were supposed to be finishing with a clearance meeting next week but that is now not happening. However, BDO have a meeting with the valuer to try and get some final answers on some of those issues.

The Committee will not be receiving a draft report (from BDO) by next week but nearer to the 25 July 2019 meeting, with enough time for Members to read.  So, the sign-off of the 2018/19 Statement of Accounts was still do-able but there will be challenges to get there.

4.    The following questions and queries raised in response to the update:

a.    In response to members regarding which version of the draft accounts they had in front of them, David Eagles clarified that this version of the accounts was as at 10 June 2019. There had been an adjustment since then on the 24 June 2019 regarding the £100m double counting of re-charge costs.

Tim Harlock clarified that the adjustment had no impact on the council’s useable resources and the bottom-line numbers had not changed at all. The mistakes that were made were in gross expenditure and gross income and was a mistake in mapping the spreadsheet.

b.    Members enquired if perhaps part of the report could be sent out to members in advance. David Eagles clarified that until there is a set of accounts that BDO think is materially correct, they would not be able to send out the report. Until the audit work is finished, BDO could not finish the report to send to the committee.

c.    Members enquired if the challenges BDO voiced regarding the audit were normal for all London borough’s or was this a one off. David Eagles clarified that London boroughs’ have so much activity running through them that it was always challenging to complete the accounts and was not unusual. The acceleration of deadlines from the end of September to the end of July, which came in last year, has put on a massive amount of pressure.

d.    Councillor Leaver asked the following questions:

·         How come this committee was circulated along exactly the same set of accounts as last the last meeting, when everybody, except the committee, knew that they might have changed. So, the committee have ended up viewing a different set of accounts and no questions asked about the new set of accounts. The committee should have received, the most appropriate, up to date set of accounts.

·         From the initial audit visit, why were the reported issues not picked up. At the last committee meeting (19 June 2019) the committee were told by the Audit Manager that there weren’t any issues which would presume that all the issues have come to light in the last 3 weeks. A direct question was asked at the last committee meeting, will BDO hit the timetable and are there any issues. The committee were told that both BDO and officers were working together and there were no reasons to delay. Now we have been told that there is a delay in the time line.

·         With regards to the £100m double counting issue, BDO presumably overstated this, did that mean that BDO’s materiality figure was higher and now it is lower.

David Eagles clarified that he did not understand how this message could have come across, because BDO knew from its initial review of the accounts that there were no group accounts and decanted housing assets issue. Some of those issues came to light earlier than the 3 weeks mentioned. The

Fay Hammond clarified that the group accounts issue would have been known but wasn’t sure if the £100m double counting issue was known at this time. The thing that possibly wasn’t known was the valuations issue. This caused the most difficulty because the valuations issue came to light more recently. At this point David Eagles had said that the valuations issue was tricky but hasn’t said that he would not make the deadline.  In response to bullet point 3 (above) David Eagles agreed and said that more work is to be done. The £100m double counting issue had come to light on the 10 June 2019 set of accounts.

Matt Bowmer further clarified, in terms of timings, that at the 19 June 2019 committee meeting, it was known at this stage that the council only had a single entity submission on the 31 May 2019 with the group accounts received on the 10 June 2019. On the 19 June 2019, Lucy Trevett (BDO) did say that there would be an impact on materiality and then subsequently, the main issues David Eagles has highlighted today. The Meridian Water and HRA valuations had been reported late in the process and the double-counting in the expenditure statement had been reported very recently.

e.    David Eagles clarified that not every issue had come to light in the past 3 weeks but most it was, during the audit work. In terms of timings, both teams are all working very hard to achieve the deadline. As the committee are aware, we have had very detailed planning and detailed timeline in place which has been agreed, discussed and updated on at various meetings. However, we are not on that because of the issues raised at this meeting.

f.     Members concern that presumably, BDO would now need more time to complete the audit and more resources to produce the accounts. David Eagles clarified that he did not know the specific answer yet. He would need to write to officers about internal control issues regarding the quality checking of the valuation reports which officers were not able to do. If they had, some of those issues may have been picked up before BDO came to audit them. So, issues had not been picked up by BDO from their interim work because they were not aware that there were issues until BDO picked them up in their final audit work.

David Eagles confirmed that that is why there was a detailed process in place to look at the valuations during the interim process. It had been reported that this wasn’t done because the valuation reports were not received on time. If something is not done about receiving valuation reports on time, then the council would be in the same position again next year.

g.    David Eagles clarified to the Chair why 12 post codes were used this year to value the council’s housing stock.

h.    Paul Reddaway, in terms of the pension fund, clarified that he had now received 2 final valuations from managers and that he would be adjusting the accounts for these 2 valuations because it would increase the pension fund by £4m.

i.      Councillor Barry commented that she was aware that things were not quite exacting and not surprised that BDO and the Council had hit more difficulties with the sign-off of the accounts. It was not a complete shock to members.

j.      The Chair also reminded members to send any further questions about the draft accounts to the Committee administrator by 12 July 2019.

 

 

AGREED to note the External Audit verbal update of the draft accounts to date.