To receive a report from the Executive Director Resources.
Fay Hammond, Executive Director Finance introduced the report.
1. Despite best endeavours the council has not been able to meet the 30 November deadline. The draft accounts were drafted in advance of the revised August deadline. However, since that time officers have struggled to get through the audit stage of the Statement of Accounts.
2. At the last meeting of the General Purposes Committee officers were overly optimistic that the different strategies that had been put in place would allow the accounts to be completed by the 30 November deadline.
3. The general complexity of the accounts and the questions raised by the auditors has been a challenge. The council has been working closely with BDO to resolve.
4. One of the most significant challenges has been around staffing levels.
5. Following contact with councils across London, over half of those who responded have also been unable to meet the November deadline for various reasons.
6. The year a number of improvements to the Statement of Accounts have been undertaken. BDO have provided positive feedback on these endeavours to make the accounts more robust. At the end of the process the council is expecting to have an unqualified set of accounts.
7. The priority now is for the Executive Director Resources to diligently and thoroughly review the timetable to ensure that with the addition of resources expected shortly (one person started this week and one is due to start next week) the accounts are completed as soon as possible.
8. The Committee is reminded that there was previously a Chief Accountant, but he left in November 2019. The Council then recruited two interim Chief Accountants as wanted to implement of a number of improvements such as the new asset register and the huge number of HRA beacons. Unfortunately, both interims left in February and the council was unable to recruit despite best endeavours. The draft accounts were produced on time but since that point the council have struggled with balancing the resources and the other work in the team to deliver the timetable for the review part of the audit.
9. The council have advertised for a permanent Chief Accountant. This post has been revaluated and is now at a much higher salary than previously and is at market value for this role, however, there were only two applicants that are A grade. Two interim Chief accounts have successfully been recruited to help the council get through this audit stage of the accounts.
Questions, comments and queries raised:
· This is the third year in a row that Enfield has missed the deadline for producing an audited assessment of accounts on time. How can we have confidence that this will not happen next year. Should these accounts not be completed until February will that mean that the accounts for 2020/21 will be late as officers will be working on two sets of accounts at the same time. Officers advised that the council does not want to be in this position next year and for each of those previous years the delays have been for a different set of reasons The council has recruited two interim chief accountants (one has started and the other starts next week) and in addition to this recruiting for permanent chief Accountant, the interviews for this role are on the 8 December. If this permanent recruitment is successful will have 3 Chief Accountants in post for February next year. The tasks will be allocation so that one of the accountants is focussing on existing 2019/20 audit queries and the other one is focussing on the new audit for 2020/21 to make sure that this is in progress and continuing at the right pace. The closure for accounts 2019/20 will have happened before the council starts the 2020/21 accounts, but there will a month or two when we are preparing for the new set of accounts and finishing the others.
· Have the items detailed under paragraph 11 in the agenda report been completed. Officers confirmed that all the items listed in paragraph 11 have been completed.
· It was raised that BDO advised at the previous meeting that if everything was right first time then the November deadline could be met, did this not happen. Officers advised that in terms of getting it right first time, the pace that the finance team worked at and that the team was reliant on one individual to produce the draft set of accounts meant that they were not at the quality that they needed to be would have liked to undertake more checking. BDO advised that the progress and turnaround was not at the speed to complete for the end of November deadline and there were some areas where things were not right first time. It was previously agreed to step back to allow time to catch up, this was not achieved to the level that it was intended. BDO reiterated that the intentions and design of the closedown process and changes to the way valuations are being undertaken was the right thing to do. This was planned with the right level of resources at the start; however, these were lost at a critical point. BDO are aware that there are continuing pressures on the market. The Redman review which came out at the beginning of September does make explicit reference to how challenging it is to find the right number and quality of finance staff to support the ever increasing and challenging position regarding production of accounts.
· What has the council got in place to retain staff and at the last meeting talked about a lack of quality control how are we seeking to address this now and for completion of the next accounts. The Committee was advised that the 2 interims have come from a council that has a reputation for delivering their accounts early and they have talked about some processes they had in their previous authority that they thought they could bring in terms of learning. They are known to colleagues within the team so there is already a relationship there. The Executive Director Resources will be seeking a commitment from them to stay through these accounts and those for 2020/21. In terms of resilience, moving forward a new post of Deputy Chief Accountant has been created and the council will be recruiting to this once Chief Accountant role has been filed. In the longer term this will provide resilience with Head of Service, Chief Accountant and Deputy Chief Accountant roles within the team.
· Clarification regarding valuations was requested on the differences this time. BDO confirmed that there has been a significant increase in volume of Beacon properties selected for valuation. Last year there were 24 Beacons, this year there have been 2 points of valuation with 400 separate Beacon valuations of HRA assets. The Asset CIPFA module has also been implemented so all assets have now been uploaded on this and valued at 2 points in the year.
· What impact has Covid had, were officers involved in the financial response to Covid were officers diverted. The committee was advised that Covid returns are completed monthly to the MHCLG on Covid expenditure and the finance team are monitoring more closely the council tax and business rates impact on the local authority. There have also been a number of activities this year specifically in response to Covid. Every other activity that the finance team have undertaken has been on time.
· Clarity requested on the next stage of the accounts. Officers advised that the Government relaxed the rules on producing the accounts this year with the draft account’s deadline 31 August and the final deadline 30 November. The draft accounts were produced in mid-July. The second stage to the process, to get to the final statement of accounts is for the auditors test the accounts; they will read what the council has produced, ask various questions such as requesting evidence and audit trail to see that the council can prove what is in the accounts is accurate and test the accuracy the asset register, talk to companies who have undertaken valuations looking at areas of difference and areas of challenge. There is a process between BDO and the council with a number of questions around sampling and testing. It is the council’s ability to respond to all of those at pace with the resources that were available. BDO advised that the key points on the audit process are substantive testing and audit trial. In simple terms if there are gaps in documentation of audit trail explanations about where figures have come from or there is insufficient time to do quality checking (to look through the numbers and see that some of this does not seem to make sense which enables you to revisit the way some of the accounts are pulled together). Without that it is quite difficult for an auditor to be able to test whether the numbers are right, and it is difficult for officers to explain, justify of ensure that some of those figures are correct. There is a degree of testing of where the numbers have come from and some testing of the figures that are in the accounts to ensure the right numbers are in the right place. The audit trail must be followed all the way, if this is broken it is impossible to carry out testing. The numbers were produced on time but some of the trail behind this and some of the quality checking was not done to the level that would normally have been done with a bit more time and that is what has caused problems in the second phase.
· What is the process for appointing external auditors? There is a national procurement process run for 93% of all councils in the country run by Public Sector Audit Appointments Limited (PSAA). There was a bidding process and 5 firms were awarded framework contracts, then PSAA appoints auditors to individual councils for a 5-year period. Auditors are appointed and quality checked by PSAA for the work they undertake
· Clarification was requested as to whether more time was allowed to complete accounts due to Covid. It was confirmed that there was more time and draft accounts were completed well before this deadline. BDO advised that the Redman Review which is a review generally about the timings of accounts and the challenges of the original deadlines. This Review which was commissioned partly on the back of the issues experienced last year when approximately 40% of all councils could not meet the deadline for 2019. There are a number of different factors that underpin these issues; the level of audit resourcing available and some significant changes that have reduced the poole of sufficiently experienced and qualified staff to undertake audits; the complexity of accounts; issues with valuations and the increasing amount of work needed on this area; and there is a scarcity of quality and experienced finance staff to support the process. Given there is an increasing complexity of accounts and accounting standards and a scarcity of skilled people inevitably something will go wrong. What was found in the review and supported by PSAA statistics is that there were a number of delays simply down to a lack of audit resource or complex technical issues or quality of accounts. There have been meetings since the start of the year hosted by the Institute of Chartered Accountants with various agencies recognising that something had to be done. Back in January there was a request for deferral of audit deadlines to allow more time for councils to prepare accounts to a quality that would be auditable. Then, the pandemic occurred with the initial response to push back deadlines to September then following recognition that was not sufficient pushed back further to November. The Review has recognised issues that need sorting out and it recommends that we do not return to an end of July publication deadline next year. There are a number of actions such as to increase the level and skills of finance staff to support the accounts, and suggestions to reduce the complexities. It is a very difficult position for councils and auditors, and they are all working together to try to find a sustainable, sensible and practical solution.
· It was noted that reasons for the problems not excuses have been given and this is different to the problems experienced over the last 2 years. The commitment of BDO and officers at the council was noted. There has been more work in this process this year, tight timelines against the background of Covid, having key staff leave makes difficulties and very difficult to address against the background of Covid both in terms of the recruitment of interims and full-time staff. There are only 10 out of 23 councils that have managed to deliver to the deadline. There was the commitment from both BDO and the council to deliver on this. Is there a risk to the council of where we are in terms of our finance and resources? Is there a resolution that we expect a delivery on these accounts and that we can have confidence that we can achieve in achieving the next set. Is there a risk and do we have a process for delivering these accounts in a reasonable timeframe? Officers advised in terms of the overall position in relation to the accounts they fully expect the accounts to be unqualified and agreed and there are no risks in getting to that point. In terms of the resolution, this is getting the right staff in and keeping them and particularly keen to build in resilience in the team.
· It was queried whether it is worth recruiting an extra person to undertake some quality checking. Officers advised that this could be considered. There are workstreams with one Chief accountant working on the old accounts and one working on the new accounts. There is a third workstream to improve quality by doing mid-year closing with more work undertaken mid-year to reduce the work at year end. In terms of reviewing quality this must be embedded throughout existing team by working with the team. There are currently have some processes in place and there is a business partner whose job is to improve overall quality of the finance team and the papers produced. In addition, having the 2 additional people coming in will help provide permanent stability.
AGREED to note the report updating on the Audit of the 2019/20 statement of Accounts.