This report will be presented by Ernst & Young LLP.
Jason Jones from Ernst & Young presented the report to the Committee providing detail of its contents.
The Key points highlighted were:
§ Risk of fraud in revenue recognition, capitalising revenue expenditure, it was explained that an opportunity had been identified to capitalise expenditure under the accounting framework, by it being removed from the general fund. That could result in funding expenditure, that should be properly defined as revenue, through inappropriate sources such as capital receipts, capital grants or borrowing. It was advised that the audit confirmed there had not been any inappropriate capitalisation of revenue expenditure.
§ Misstatements due to fraud or error, it was confirmed that E&Y had not identified any material weaknesses in controls or evidence of material management override. No instances of inappropriate judgements being applied or of any management bias were identified and that there were not any transactions during the audit which appeared unusual or outside the Council’s normal course of business.
§ Valuation of land and buildings, it was confirmed that this was a significant amount that was subject to a large number of estimation techniques.
§ Pension liability evaluation, accounting for this scheme involves significant estimation and judgement, therefore management engaged an actuary to undertake the calculations. As a result of a recent Court judgement affecting pensions, one adjustment was made that effected the pension fund liability, the effect of which increased past service cost and gross liability. The Council contacted the actuary for an updated IAS 19 report and have amended the accounts. Work on this area is substantially complete.
§ HRA Depreciation, 2017/18 was the first year that Authorities with HRA housing stock needed to account for depreciation using proper accounting practices, E&Y engaged with management early in the process and no issues were found.
§ Accounting standards, to be implemented from 1 April 2020, this was deferred by CIPFA. The Council did not have significant operating contracts and therefore E&Y do not believe this will have an impact on the Council in the future.
§ Audit report, it was E&Y’s opinion that the financial statements gave a fair view of the Council and it was confirmed that no matters were due to be presented as an exception.
§ Audit differences, it was confirmed that there had been one misclassification identified between two different accounts, the amounts had been manually captured incorrectly in the Collection Fund, however the net effect was zero; and it was confirmed that at the time of writing the report there were no uncorrected misstatements.
§ Value for money risks, one significant risk had been identified in October 2018 in relation to the lack of financial reserves, given the financial pressures in the public sector there is an increased focus and wider public interest in the financial resilience of the Local Government. However, it was confirmed that 2019/20 budget was balanced.
Jason was asked if any risks been identified in terms of I.T infrastructure being vulnerable to cyber-attacks. He confirmed there nothing had been identified at this moment in time, but that this was more a matter for Internal Audit.
Councillor Chapman stated that although the 2019/20 budget is balanced beyond that period the plan identifies the need to use reserves and although the Council stays above its general fund balance until 2022/23. He believes that Arun needs to watch this carefully, as it would take a long time to recover from any financial deficit.
The Committee expressed their thanks to Ernst & Young, for all their hard work. Jason gave his thanks to the teams at Arun he had worked with in getting these items ready to be reported on, on time.
The Committee noted the report.