Agenda item

The Completion Report for Those Charged with Governance 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 (E&Y) presented the report to the Committee. He reminded Members that at the last meeting he had appraised Committee of the backlog in local public audit, and the arrangements being introduced by government to address the backlog. Legislation had been passed at the end of September that allowed for the clearance of old open audits by set statutory backstop dates. The backstop date for old open audits up to and including 2022/23 was 13 December 2024. At the last meeting he had explained E&Y’s intention to disclaim the opinion on the Council’s 2022/23 financial statements to ensure delivery by the backstop date. The Audit Completion Report set out the work completed in 2022/23 and work done in order to be able to disclaim opinion on the financial statements. The executive summary on page 11 set out reasons for the backlog in local public audit. This report confirmed E&Y would disclaim the opinion on the 2022/23 financial statements. This was not attributed to any issues at Council, but to the national pervasive issues. He did however, state that the Council did not file the Accounts for 2022/23 and 2023/24 by the target established in the regulations. The Leadership team were aware, and actions were being taken to ensure this did not happen again.

The External Audit Partner highlighted page 19 of the agenda, which showed the 2022/23 Work Plan. Page 26 set out the results and findings of those procedures, and there were no particular findings he needed to draw Members’ attention to. This also set out the draft auditors report including the basis for the disclaimer, which was the national context and not any particular issue at the Council. Page 32 set out the Value for Money Work that had been completed. This had been presented to Committee in July. There were no changes to the conclusions, and they had not identified any risks of significant weaknesses, and no actual significant weaknesses.

          The Chair invited questions, and it was asked how the land and buildings were valued, and whether this was based on current use or potential use. The External Audit Partner explained that each year the valuation of land and buildings was a significant risk as it was an accounting estimate. The estimate would be based on both current use and potential use based on factors such as whether planning permission had been granted. This had not been tested in the 2022/23 year, however it had been tested in the 2023/24 year, and would be presented to Committee at the next meeting. The Group Accountant confirmed he would provide Members with an update on exactly how the valuations were carried out, and whether additional information was provided to the external valuers by the Council.

It was asked whether the External Audit Partner could provide assurance that the next audit would take place without any problems. The External Audit Partner was unable to confirm that any audit would not detect issues or problems. He explained it would take time to get back to the point where E&Y were able to issue an unmodified audit report. This was because the 2023/24 audit would have no assurance in relation to the brought forward balances because of the disclaimed 2022/23 audit, therefore no assurances in relation to the majority of in-year movements, and no assurance in relation to some closing balances. That would impact the next 3 years. For 2023/24 they will have undertaken a programme of work consistent with what E&Y would normally undertake in an audit. They would be very clearly presenting to Members in the audit results report for 2023/24, those balances where they had full assurance, those balances where they had partial assurance due to the brought forward issues, and those balances that they would not yet be able to give assurance. If errors were found this would be reported and managers would be requested to adjust where necessary. The Committee would then consider the management’s judgement regarding whether to adjust or not, as usual.

The Chair sought confirmation that a full audit would be undertaken for 2024/25. The External Audit Partner explained that a full audit would now be undertaken each year. He highlighted the guidance that had been issued from the Financial Reporting Council and the National Audit Office, which set out the timeline for recovery. He expected that the 2023/24 audit would be a disclaimer, the 2024/25 audit would be a disclaimer, the 2025/26 audit would be a modified opinion, but not a full disclaimer, the 2026/27 audit would be back to the position of being able to issue an unmodified audit report. He gave assurance that E&Y would be undertaking a full programme of work in each of those years and the findings would be reported to the Committee.

The Group Head of Finance and Section 151 Officer confirmed that he had circulated a letter from the Ministry of Housing, Communities and Local Government (MHCLG) to the Committee Members the previous week. This expressed the government view that it was not expected local authorities would be judged unfairly for receiving a disclaimer opinion.

One Member was concerned that a recent press article had grouped together all Councils that had not produced full audited accounts with those Councils that were in financial difficulty. He felt there was a real reputational risk for all Councils in the same position as Arun over the next 3 or 4 years, until the normal audit process had resumed. The Group Head of Finance and Section 151 Officer explained the issue was not that the Accounts had not been ready, and was down to the issues experienced nationally. He could only offer assurances to Members based on communication received from central government.

The External Audit Partner reiterated that the audit report made it clear that the basis for the disclaimer only related to the statutory backstop dates and the inability to complete the audit on time. He explained that for other authorities with other factors that led to the disclaimer, this was very clear in the basis for disclaimer. In authorities where there had been financial failure that was clear by exception in Value for Money. He therefore felt there was a clear distinction in the reporting between those authorities where other issues had led to the disclaimer, or whether it was due to the statutory backstop date.

The Chair asked whether there had been any movement around the complexity and regulatory pressures that had been placed on external audit. The External Audit Partner explained the statutory backstop dates were a necessary correction that needed to happen, there now needed to be systematic changes to affect a sustainable recovery. He felt the financial reporting framework needed to be simplified, which in turn would make the profession more attractive.

The Committee noted the report.