Agenda item

2019/20 FINAL ACCOUNTS UPDATE

To receive an update report on the Final Accounts.

Minutes:

Fay Hammond, Executive Director Finance, Matt Bowmer, Director of Finance and Gareth Robinson, Head of Corporate Finance introduced this report.

 

NOTED

1.      Fay Hammond advised that although the accounts were out on time at the end of June, the lack of resources within the team has caused problems with the audit, so currently the council is not in the position that it would like to be in. Every effort will be made working with BDO to hit the November deadline, but this is at risk.

2.    The accounts have taken place against the backdrop of Covid 19 and against the need for major change as noted in the October 2019 report to the previous Audit and Risk Committee.

3.    The five key factors noted in that report were; the need for a new asset register; inconsistent set of accounts; inadequate quality control, financial system issues and HRA valuations of beacon properties.

4.    There were serious concerns from finance and by BDO on the data contained within the Asset Register.

5.    Inconsistent accounts due to no core trial balance which is often the basis of the statement of accounts itself

6.    Lack of an adequate quality control process and a financial system which is difficult to interrogate so very difficult to response to auditors with the key documentation evidence that they require in a timely manner.

7.    To resolve these issues a resourcing plan was put in place. This involved bringing in two temporary chief accountants with a specific remit on capital and revenue, as well as additional resources to partly backfill vacant posts to ensure that there were adequate resources to deliver the audit. Unfortunately, prior to closedown of accounts both agency staff left, and the Council was unable to replace them. On top of this one team member retired and two individuals left the team. Two new staff members at accountant level were recruited, unfortunately one of these had a bad injury and will be off work until early November and the other started 19th October 2020. The Council is reliant on two staff members for the main Accounts, although the main pension fund team is fully resourced. Moreover, the main accounts require specialised resource, preventing major reallocation of existing internal resources. There is a long-term plan as the Council has gone out to recruit to the role of Chief Accountant and trying to arrange a short-term contract as well.

8.    The Council did meet the first deadline to produce the Accounts under revised timelines. However, it will require a significant extra push to meet the next deadline.

9.    A new Asset Register has been successfully implemented and in the course of this implementation, the officers have discovered numerous errors in the records. The challenge for BDO is due to the delays on the other items, they have not been able to review the data migration on the asset register.

10.A new trial balance was produced for the accounts and the main statements are consistent but notes not linked to the Trial Balance have errors on them. BDO have raised these inconsistencies and working papers need to be updated, in line with their challenges.

11.There was a similar issue with regards to valuation documents, as many documents were not updated with the word ‘Final’ even though they were the final documents. Also, there was also a table with an incorrect total. These issues should have been picked up in the natural review process but instead were sent to the auditors, which wasted a lot of their time checking. This takes away from time that their junior officers would normally have spent on sampling.

12.All the major balances were reconciled to the end of August. However, the smaller balances have not been; these are potentially over £1m on any individual code. There was a specific issue relating to leaseholder debtors in that a detailed listing could not be produced that reconciled to the end of year balance. The listing of a debtor or a creditor details how much money is owed to or owing by or to the council, which is key supporting evidence. The auditors cannot test, validate and verify those balances. This evidence should be available to them when they arrive. This has led to delays in the audit process overall.

13.The financial system itself is clunky and challenging to interrogate but cannot be easily fixed. This creates a real challenge for auditors when sampling as each transaction cannot easily be followed through the system and is very time consuming to test.

14.The other major issue is the HRA valuations. Despite work undertaken to change processes the same situation has repeated itself. BDO received this late, the beacon sheets did not match the main valuations documents. These beacon sheets are the documentary evidence of the construction type and how the property has been valued and include 2-3 comparable properties. There are 400 core beacon values and more than 10k properties across the entire estate. Every beacon sheet should have 2 or 3 comparables and BDO need to test that these are appropriate comparables so that they can challenge the audit process. This checking process did originally take place. However, the information provided to the Council was an erroneous control sheet. Following BDO’s query over 1200 documentary sheets had to be reviewed with the valuers in detail over three different periods. This caused delays in getting these backs to BDO of over one month and the Council missed a resourcing window of staff due to this.

15.BDO want to resolve all outstanding queries. The Council will need to undertake an additional process to check all the queries that we have submitted so there is quality assurance before BDO can audit.

16.Alongside the Meridian Water beacon valuations and the review IS19 calculations pension liabilities and the bad debt provisions are the main elements in the audit. There is probably 50%of the audit still to take place with the statutory deadline only six weeks away this will be very challenging to complete this on time.

17.In terms of the next steps the following three points were highlighted:

o   There has been successful recruitment over the summer of the system accountant, who then started although he had an unfortunate accident, leading him to being off work till early November and an asset accountant starting on the 19 October. The advert for permanent Chief Accountant also goes live on the 19th October and the Council are seeking agency cover for the period that it takes to recruit.

o   The council is working very closely with BDO, mindful of their resources as well as those of the council. A two-week pause has been agreed with BDO to allow for some leave to be taken and to clear down the existing queries and to ensure that the final pieces of work needed by BDO have been properly quality assured. If we are to achieve the deadline of the 30 November everything must be right first time.

o   There has been good progress on the reconciliation work over the summer and there are reconciliations in place for all major accounts until the end of August. There is a monthly process in place, which has been facilitated by the trial balance that is now in place.

 

Questions, comments and queries raised:

·         The Council has been in this position with the same issues being raised before several times what are we doing differently in the next steps. What’s the deadline for recruitment?  Officers advised that have gone for an agency Chief Accountant and are currently reviewing CV’s if there is someone suitable, they should be in place within a couple of weeks. With regards to the permanent recruitment by the time the selection process has been completed it is likely to be January or February next year at least before someone is in post. Part of the strategy is if the permanent recruitment is unsuccessful, we will have an agency person that can see through the accounts for continuity. The job description has been rewritten and regraded to attract applicants and ensure that the right person with the right skills are employed. Similar issues to that in previous years currently as do not have a Chief Accountant in post in the Council, this person would normally pull all these issues together. Had the role have been in post, recruitment was attempted but was unsuccessful the council would be in a very different position. The main hiccup has been resourcing.

·         What was the problem with Northern Trust? Northern Trust will be picked up under the pension fund items

·         In terms of Meridian Water valuations there was previously an issue on industrial and residential values, and which was used. Why are there still issues with this? Officers advised that for Meridian Water a document has been commissioned from an outside specialist (on local government financial accounting) to review the classification of Meridian Water itself and this has been presented to BDO. BDO are closing off other queries before reviewing this. The valuers have provided different types of valuation for Meridian Water. The area of technical dispute of classification is why the accountancy document was requested to provide the evidence that BDO require. This was commissioned when it was realised that it was needed.

·         Members commented that quality assurance has fallen down during the process. What has been put in place to address this moving forward if we end up with the same resource issues? With roughly 50% of the audit still to do in six weeks how confident are we that this can be achieved?  Officers advised that the insufficient quality review has caused difficulty and resource challenges for both the council and BDO. The key focus of the two-week pause is to clear up outstanding queries and to make sure that the items that BDO still need to review for the closing part of the audit are given a thorough quality review before handing anything over to them. This deadline is a real challenging target and to achieve this must get things right first time.

·         Following a request from a member to receive the technical valuation for Meridian Water to be shared with the Committee. Officers confirmed that this can be shared with the Committee members.

 

Supporting documents: