Agenda item

The External Audit Update Report will be presented to Members of the Audit & Governance Committee by representatives from Ernst & Young LLP.

[10 Minutes]

          Upon the invitation of the Chair, Simon Mathers, External Audit Partner from Ernst and Young LLP presented the report to the Committee. Details of the 2022/23 audit commenced on page 14 of the agenda pack. The External Audit Partner reminded Members that at the last Committee meeting he updated about national measures to address the backlog in local government audits, and there had been significant movement in respect of this. In September 2024 legislation had been laid before parliament, which then came into force on Monday 30 September 2024. The statutory backstop date for completion of 2022/23 audits had been fixed at 13 December 2024. Backstop dates had also been set for subsequent years, and audits had to be completed by these dates, with Councils having published accounts and audit reports completed. If the work was not finalised by these dates, an audit report based on what had been done would be formed, which essentially meant the auditors would issue some sort of modification or qualification to that report.

          Ernst & Young LLP had previously set out their strategy, which was not to attempt the 2022/23 audit in order to clear the backlog. They had communicated to Members at the last meeting that they expected to disclaim the 2022/23 audit. They had now moved forward with their programme of work, and were required to complete their work across all local authorities by the end of November, giving time for local authorities to complete the signing and publication of the accounts by the backstop dates. The next scheduled meeting of the Audit & Governance Committee was 03 December 2024, so the report could be brought to that meeting, accounts for year ending 31 March 2023 could then be approved, and Ernst & Young LLP could sign the disclaimed report. The accounts and disclaimed report could then both be published together, hitting the backstop date, which would be tight, but manageable.

          Details of the 2023/24 audit started on page 16 of the agenda pack, and it was clear there was a significant amount of work that needed to be done in a short space of time. Ernst & Young LLP’s resources were finite, and they had therefore had to undertake a prioritisation review. A letter had been sent to all Section 151 Officers in August 2024, setting out that they would be looking at all Councils that had not published accounts by the end of July 2024. They updated this assessment in early September, and Arun District Council’s (ADC) 2023/24 accounts had not been published, although Officers had indicated the accounts were in a position to be published, and working papers could be made available. Ernst & Young LLP, had taken the difficult decision to deprioritise the audit and move the resources to those councils that had published their accounts on time, or onto the team undertaking the work to complete disclaimed audits for 2022/23. This was a change from their position at the last Audit & Governance Committee. ADC were not alone in this position.

          Ernst & Young LLP had committed that upon completion of ADC’s 2023/24 accounts, they would reassess whether they would be able to start and complete the audit, and should circumstances change with sufficient resources freed up, they would inform Members of this. He explained the planned work on Value for Money arrangements for 2023/24 audit would still be completed. There was not currently a team allocated to the 2023/24 financial statements audit, and it was likely they would disclaim those accounts similar to 2022/23.

The Chair invited questions and it was asked what the implications were for ADC following this update. The Group Head of Finance explained that the accounts would be published within the next week or two. He went onto say that in the past the Council had always produced a high standard of papers and been in a position to publish these in good time, which had been acknowledged by previous auditors. He felt disappointed at the situation, and although he understood Ernst & Young LLP were also in a difficult position, he highlighted that delays to the 2021/22 and 2022/23 had not been down to the ADC. However, those sets of accounts were still to be signed off, and furthermore ADC had only recently been requested by Ernst & Young LLP to provide further information. The 2023/24 Accounts had not been published within the required timescales, but Officers had been working under exceptional circumstances. ADC was likely to get a disclaimer opinion, which was not where the Council would want to be, but for 2022/23 it had no choice in this, and this was likely also the case for 2023/24. He emphasised this did not mean ADC would have a qualified set of accounts for those financial years, which would be the worst case. The situation would not affect ADC in cash and budget terms, and Officers would work to make sure we would not be in the same situation for 2024-25.

One Member asked whether the delay was something the Committee should be seeking positive intervention on, and who was responsible. The Group Head of Finance explained a restructure was being carried out in the finance department, aimed at tackling several issues including ensuring they were able to complete accounts in a timely fashion going forwards, and increasing accountability. Arun had always had a good relationship with Ernst & Young LLP in the past, and he was sure this would continue.

The Chair highlighted that the next meeting was 03 December 2024, however the agenda would need to be published in advance of this, and he requested clarification that we would be in a position to meet these deadlines, and whether Ernst & Young LLP were waiting on anything from ADC. The External Audit Partner believed all of the requested information had been provided to the auditors and they could offer outputs for the Audit Completion Report and Letter of Representation by the end of November at the latest. For the December meeting, the Committee could consider all the necessary items, or delegate authority to Officers to approve these.

The Chair explained his understanding was that ADC would not be audited for 2022/23 in order to complete the backlog, and he asked whether the Council had therefore paid for an audit that would not be happening. The External Audit Partner explained that some work had been completed including the Value for Money report, and they had also undertaken limited procedures on the financial statements. He explained ADC bought into a framework arrangement that was run by Public Sector Audit Appointments Ltd, and they would determine the fee payable for 2022/23 based on the level of work undertaken. The Council had already been invoiced for this, and if it was determined that the level of work completed did not merit the amounts paid, the appropriate amounts would be adjusted back to the Council.

The Committee noted the report.