To receive the following reports:
i. Draft Statement of accounts 2019/20
ii. BDO – Draft LBE Audit Completion Report 2019/20 – IA260- this report is not attached to the agenda and will be circulated ‘to follow’
iii. Pension Fund Accounts
Matt Bowmer, Interim Director Finance & Commercial introduced the report.
1. The report presents the Council’s final 2019/20 accounts as at the 14 April 2021.
2. The report covers the key changes that have been made from the audit work with BDO account and are outlined in paragraph 11 onwards of the report. The full list of adjustments is set out in the Adjusted Audit Differences section of BDO’s draft Audit Completion Report.
3. The audit is still ongoing and there are likely to be some minor changes, such as disclosure notes and the text in the statement. It is not anticipated that there will be any further changes to the main core statements.
4. The finance team is continuing to deal with technical review queries, manager review queries and partner review queries.
5. The team’s response in responding to queries is much improved, as an example 62 technical queries were received on Monday and all but 2 are now complete.
6. It has taken longer to get to this point than was anticipated at the last General Purposes Committee meeting.
7. The challenge faced at present is down to the extensive work that has needed to be undertaken by both the Council and BDO on Prior Period Adjustments (PPA). Officers were aware that once the outcome of the PPA was resolved that it would require extensive reworking of the accounts. However, it has required a full reconciliation of the data migration from SAP to the new CIPFA asset register. This has been a colossal piece of work, as an example there are twenty-two thousand lines of HRA assets in this schedule. In addition, this had to be reviewed including the changes coming out of it with the BDO team.
8. Another factor has been the need to reconcile and agree all of the adjustments in the final accounts set out in BDO’s completion report.
9. The positive going forward is the quality of the asset data is now greatly improved and provide a clean base to go forward on.
10. At this late stage of the audit, in addition to dealing with various quality review questions, BDO are now working on the valuation part of the audit and completing this work. As a consequence of this, it will not be possible for BDO to complete their work by the end of the month as intended. This now means that BDO has health audit work that needs to be undertaken. Discussions are ongoing with BDO on the timing of the completion of their work.
David Eagles from BDO (External Auditors) introduced the Auditors completion report
1. Since the last committee meeting on the 4 March the key point in the progress made is agreeing the PPA linked to the change of asset register.
2. It was anticipated at the time of the last meeting that there were some adjustments that could be put through as part of this process and that this would be a relatively straight forward exercise to get to that point. However, it has required a complete reload of that data set which then had to be worked through. To provide a context to this, that work was only completed at 4pm on Sunday 18 April and fed through to the completion report in the agenda papers. This was 6 weeks of significant work that it was not anticipated would take this long and has had a knock-on effect on the rest of the audit and the ability to complete things by the end of April.
3. It was absolutely essential that that starting point was resolved, agreed and reconciled to provide a firm starting point for undertaking residual sampling work on valuations to get to the final position to be able to provide the assurance on the accounts. The work that has been undertaken on the new asset register should pay dividends going forward, as the issues that have causes the overruns in the past should no longer be there.
4. The body of the completion report sets out the amendments that have been agreed and actioned and are reflected in the Statement of Accounts in the report.
5. The detailed report covers the findings in respect of significant risk areas that BDO have reviewed. The main adjustments include various references to different aspects related to the asset reclassifications and re-analysis of valuation issues, and a reflection of valuation issues relating to Meridian Water where there had been a misclassification of the development costs.
6. The significant issue related to the reworking pension fund estimated liabilities position is referred to on page 5 of the supplementary pack.
7. Page 11 of the pack provides a listing of the risk issues that BDO were reviewing as part of the plan.
8. Management override, which is the ability for management to manipulate accounts on page 12 of the report, no issues had been identified. This also looks at other areas of potential manipulation, work in terms of valuations has not yet completed. Although nearly at the point of completion on the pension fund and no areas have been identified on these so far.
9. In terms of expenditure cut off this is very nearly finished it is not expected to find any significant material issues.
10. Pages 14 onwards in respect of valuation of non-current assets, work is still being undertaken and BDO are a significant way through the valuation work on the Meridian Water assets. HRA beacon assets, valuers have asked a number of questions on the approach, the principals and the methodology being used and BDO are satisfied that this is a reasonable basis for undertaking the work. The residual work that needs to be undertaken is some direct sample testing of valuations calculated as of 31 March 2019 and some various analysis for the position 31 March 2020. This is a significant volume of sample testing, the preliminary sample is 150 separate Beacon assets. The samples will be with the valuers so they can be addressed by the time BDO are able to recommence their work. There are some residual pieces of work ongoing in respect of investment properties and other buildings as well.
11. On the Pension Fund from page 16 the assumptions now being used are within the acceptable rate. The work on the pension fund is very nearly complete with some residual issues in terms of valuations.
12. Page 19 details issue related to control issues report. A recommendation is set out in the report with a draft response.
13. Page 21 migration of asset register is detailed, this is a necessary and valuable piece of work.
14. Preliminary findings in respect of use of resources work are that there are two significant risk areas; one relating to sustainable finances this is detailed in the report and BDO have concluded that the arrangements are adequate. The second relates to the development of the Meridian Water project and connected areas. The expectation is that they will be an unqualified conclusion in respect of use of resources.
15. Page 60 relates to recommendations and deficiencies.
Detailed discussions took place including:
· An observation was made that it is not acceptable as this is the third year in a row that the accounts are delayed.
· Academies and pensions why has this been missed? Officers advised that this was an error in the data sent across to the actuaries at the start of the process.
· Asset register the report says that both the council and BDO have had problems with SAP please can you explain further. It was clarified that the issue with the asset register is that it is hugely complicated. The issues that BDO have had from an audit perspective is to understand the nature of the issues arising due to the review. It has been complicated to understand and identified further challenges in getting to a resolution than anticipated in March. This has been a huge exercise the data in the SAP register was very poor and has been at the root of the challenges over the last 2-3 years. The move to the CIPFA asset register is a very strong positive step.
· What knock on effect will there be on 2020/21 accounts? BDO advised for 2021/22 audits there is a wider sector position in respect of the deadlines that MHCLG has set accounts prepared by the beginning of August and audited and published by the end of September. Nobody within the auditing sector think this is reasonable or achievable. The Executive Director, Finance advised that in terms of knock on effect finance are working as a team to provide the draft set of accounts to the statutory deadline of the 1st August. The outturn position will be reported to Cabinet in July. Resources are in place to support the quality of the 2021/22 draft accounts.
· Will this be the last time that the valuation exercise creates a major hold up with process and will not be a fundamental issue in the future. From an audit perspective the critical issue is data quality and when a clean data set is achieved this should not be an issue in the future. The second issue is where the valuer does not deliver information on time to be challenged. If these are delivered will reduce risk significantly.
· An email had been received from Cllr Lemonides, finance agreed that a response will be provided by email to the Committee on points 3-9.
AGREED by a majority to approve the 2019/20 Statement of accounts as presented to the Committee and delegate authority to the Chair of the Committee in liaison with the Executive Director of Resources to agree any minor changes to the Council’s Statement of Accounts which may arise as a consequence of the outstanding review work being undertaken by BDO.
Councillors Laban, Lemonides and Smith voted against this recommendation.
Matt Bowmer, Interim Director Finance & Commercial introduced the Pension Fund Accounts report.
1. The Pension Funds accounts were presented and approved at the last meeting of the Committee.
2. The accounts were going through the technical review stage. There were 20 technical review questions and as consequence of responding to these some very minor changes have been made to the accounts.
3. The approved recommendation from the last meeting had no provision for any changes to be made. The final accounts have been bought back for approval. All technical queries have been sent to BDO and there will be some further very small minor adjustments to the accounts. The Committee is asked to delegate authority to complete this so that BDO can complete their audit work and issue a final completion report. BDO confirmed that there were minor technical points that have been worked through one final point to be finalised.
AGREED to Approve the final Pension Fund Accounts and delegate authority to the Chair of the Committee in liaison with the Executive Director of Resources to agree any minor changes Pension Fund Accounts which may arise in response to BDO’s technical review