Agenda item - STATEMENT OF ACCOUNTS

Agenda item

STATEMENT OF ACCOUNTS

To receive the following reports:

 

·         ISA260 (Completion of Audit) Response and Improvement Report. (This is our initial response to the draft 2019/20 ISA260 presented by BDO at the last GPC meeting).

·         Statement of Accounts 2019/20 and 2020/21 Progress Report (covers main accounts and Pension Fund).

 

Minutes:

Gareth Robinson, Head of Service, Corporate Finance introduced the reports:

 

Statement of Accounts 2019/20 and 2020/21 progress report covering the main accounts and Pension Fund.

 

NOTED

 

1.    The report sets out the progress of the 2019/20 and 2020/21 Audits.

2.    Overall Enfield are on track to achieve the 2021deadlines but there had been challenges during progress as detailed in the report.

3.    For the 2019/20 audit there were 3 main items outstanding:

·         Beacon data supporting the HRA valuations

·         Credit sampling that needs re-sampling

·         HRA account.

           BDO want to review these for further clarification.

4.    The plan was for BDO to post the NHS audit deadline by 30 June 21 but BDO would report their status later in the meeting. The goal was for BDO to finish auditing w/c 2 August 21 with a final review taking place after that stage.

5.    Regarding the 2020/21 Audit, the team had  a clear focus on grants due to the importance of Covid grants this year. Over £100M worth of grants had come to the Council with some going through finance books as transfer payments. There were issues in 2019/20 but finance wanted to make a big stage improvement for this financial year.

6.    There had been additional capacity in the finance team to undertake far greater review up front. There are now 3 specific review areas:

·         An accruals panel – everything is reviewed not just by the manager but by the accruals panel itself.

·         Assurance Panel – this takes place for all the working papers across the board to show a more detailed review of all the grants and evidence for assurance with this better credible position.

·         A 3-week review stage – to ensure that every aspect of the draft accounts are reviewed again and to get things right first time. The team are targeting to complete the draft accounts by 6 July 2021 and require a 3-week period to review them again. This was about reviewing the quality of data behind the coding/transactions.

7.    The Finance team were having continued weekly meetings with BDO to ensure continued dialogue, discussing resourcing and to prevent unnecessary issues in the accounts.

8.    The Audit landscape had changed significantly over the last 2-3 years. There are pressures on audit firms and Councils with sheer sets of accounts still open. Much higher standards are expected, and audit firms are struggling for resources to do this. With Covid, there had been a challenge of off site working, influx of Covid Grants involving hundreds of millions of pounds. The grants are more complex, and the standard was higher. The finance team had to make sure that no money is wasted for 2020/21 and 2021/22.

9.    At a recent PSAA briefing, attended by officers, speakers spoke about a national concern around staffing challenges that all audit firms have nationally. There are over 100 Councils whose audit opinions are outstanding as at May 2021 from that position. The PSAA will be re-tendering the new audit firm contracts for 2023/24 and the Committee need to consider what it wants to do. Whether to join the PSAA contract, do something themselves or to join the London wide networks.

10.In terms of the 2019/20 audit, the team are in the best place it can be to progress the audit, ready for BDO’s return. The team are now waiting for BDO to get their resources in place to come and finish the audit. The final accounts were presented to the committee in April 2021 and the team are not expecting and significant changes to those.

11.In terms of the 2020/21 audit, work is still ongoing, and the team will absolutely publish the draft accounts by 1 August 2021. There had been value in a lot of the up-front work that had been done which will help the team when the final review process happens once BDO come in. The team are confident around the improved quality of the accounts. The 2019/20 accounts were submitted on time but not with the right quality. The 2020/21 accounts quality will be better, on time and will improve the audit process. The Council have new Audit Partner, Lisa Blake, who will be attending the next committee meeting on the 4 August 2021. BDO will be coming into the Council from September – November 2021 to audit the 2020/21 accounts.

 

 

ISA260 (Completion of Audit) Response and Improvement Report.

 

NOTED

 

1.    The report was an initial response to the ISA260 (as detailed from page 13 of the report) and first thoughts on the improvement plan.

2.    The original review of the accounts happened in October 2019 and recommendations were made across the board. It was a good time to review the 2019/20 and the 2020/21 account processes.

3.    The Asset register, coding and early valuations have been done but the team still need to further improve month end processes. Grant accounting and records have improved but the team need to ensure these are completed in year by ensuring that this is done right first time. Some staff training had been done. Business partnering and embedding the changes are key and this would be focussed on for 2021/22.

4.    As detailed at paragraph 48 (page 18-19 of the report) the accounts are based on 5 building blocks that are the foundation of good financial habits:

                                          i.    Balance sheet breakdowns.

                                        ii.    Correct credit recording revenue.

                                       iii.    Expenditure and Income is recorded in the correct year.

                                       iv.    Valuations of liabilities and non-current assets.

                                        v.    Accounting treatments.

5.    New financial controls would be put in place in March, April and May 2022 to ensure that income is correctly forecasted. The team still have to complete an unqualified set of accounts for 2020/21 and they hope to deliver the accounts within the statutory deadlines.

6.    The purpose of this report is for the Council to respond to the ISA260 that was issued to this committee at the last meeting in April 2021. This is an interim report to what the team are responding to in 2020/21and to reassure the committee that action is being taken and feeding in the learning from 2019/20 ISA into 2020/21. The Executive Director Resources would like to bring a more detailed report that talks about how they will be embedding those process systems and people changes not just for 202/21 but beyond that. This interim report shows where the team are at present.

 

Detailed discussions took place including:

·         In response to questions relating to the impact of Strutt & Parker (Valuers) on the accounts and if BDO would be able to complete the audit on time. It was clarified that Finance do not intend to change the valuers for this year’s accounts (2020/21) but would be looking to do that for next years (2021/22) accounts. The reason being that the team want to get the 2020/21 accounts completed on time with the right quality and if they changed those providers, it puts that at risk. BDO clarified that at present they have audit slot times booked for September, October and November which have been agreed and they plan to complete the audit by Christmas 2021. The mandated deadline from the Ministry of Housing, Communities & Local Government MHCLG) is the end of September which is unachievable by all PSAA firms based on starting points for public sector audits. Written representations by these firms were ignored by MHCLG and so BDO have agreed with the Council to complete by Christmas 2021 dependent on Enfield being on time with a good quality set of accounts and supporting working papers by 1 September 2021 for BDO. BDO do not tend to comment too much on the draft form of the accounts.

·         In response to BDO Covid safe working in the office if work could not be completed at home – it was clarified that BDO have a different view of risk and are risk averse regarding working in the office. The finance team had all been in the office at different times and would have been available to BDO. The Executive Director Resources has spoken with Lisa Blake (new audit partner) about how the Council will work with BDO for the 202/21 audit process with a further briefing next week.

·         Members were disappointed that David Eagles (BDO) had not returned any of their e-mails or phone calls since October 2020. BDO apologised and would follow this up by tomorrow.

·         Clarity was sought regarding paragraph 13 (page 22 of the report) and paragraph 3 (page 13 of the report) that the Council and BDO did not seem to be aligned and the Council are taking a clear line that the problems with the audit seems to be with BDO. Reference to paragraph 15 (page 15 of the report) regarding the securing of appropriate resources being a continual challenge. Failure to secure a Chief Accountant, by the Council, on two previous occasions. How would the Council recruit for a third time and why are they unable to recruit? Concern was raised about paragraph 18 and paragraph 22 (page 23 of the report) regarding the signing off the 2019/20 accounts and the delays in the work programme for closing the 2020/21 accounts due to Corporate resource being focussed on the 2019/20 accounts. Clarity was sought regarding paragraph 26 (page 24 of the report) about grant accounting for the 2019/20 accounts with entries incorrectly coded leading to numerous audit queries. Why did this occur and was this a Council or BDO issue?

Public sector audits across the sector is suffering from capacity issues and BDO were not alone on that. BDO are struggling with resources along with all public sector auditors. In response to the Council incurring additional costs for BDO resource issues, BDO clarified that although they could not recruit, they had identified issues with the Council’s accounts, looking at a significant number of adjustments and issues with valuations. This took more time and pressure on its resources and therefore increased the fee. The additional fees incurred for the 2019/20 accounts were due BDO’s additional work related to the quality of the accounts. But the capacity issue, nationally, is related to the 2020/21 accounts and the fees for those are not known yet. The PSAA are the body that set the audit fees for 2020/21 and are part of the contract that most Council’s are part of. They appoint who auditors will be for each Council.

Chief Accountant – There has been a shortage of Chief Accountants for the audit market, in 2010-14 Local Government stopped hiring trainee accountants which left a void in the marketplace. The Council had originally recruited someone they would develop but they then left the Council. Proceeded to market but to no avail. The post was then re-graded to attract the right candidates; however, the quality of candidate was not good enough. The Council need a high-quality Chief Accountant. A deputy Chief Accountant has been recruited and the Chief Accountant post is going out to advert again.

The Council have an unqualified and qualified set of accounts for this year and residents should be assured of the Council’s financial management processes.

Assurance was sought that the independent scrutiny role by the Council and BDO is robust and is kept independent. That BDO is not afraid to challenge the Council and to be held to account. BDO clarified that there had been a change in Audit partner for 2021 which happens every 5 years. A new partner would prevent that perception of lack of independence and close working. There had also been a change of manager for the 2019/20 accounts which ensures not having close established relationships where things are getting friendly, etc.

·         The Executive Director Resources apologised for the 2019/20 accounts and for not having met the right quality of those accounts as they would have liked. But action is being taken to ensure those accounts are continuing to be of good quality in the future. However, the 2019/20 accounts were completed on time except for the quality of those accounts.

·         Members were happy to support private meetings with BDO as good practise twice a year before the committee meetings.

·         The final set of accounts for 2019/20 would be published on the 1 August 2021. There would then be a further General Purposes Committee (GPC) meeting in September 2021 to consider the final 2019/20 accounts signed off by BDO. At the October 2021 GPC, BDO would have started the audit for the 2020/21 accounts and the committee would have had the final report for the 2019/20 accounts. It would also be a good reflection of good lessons learned.

 

AGREED to note the Statement of Accounts 2019/20 and 2020/21 progress report.

 

·         Councillor Leaver was unable to vote on this item as he had missed the start of the item.

 

AGREED to note the ISA260 (Completion of Audit) Response and Improvement Report.

 

Supporting documents: