Verbal update to be provided to the Audit & Governance Committee by representatives from Ernst & Young LLP setting out the latest position on guidance to be received from the Department for Levelling Up, Housing and Communities to tackle the system-wide audit delays. The update will also include the possible implications of this guidance once finalised for the planning and delivery of the 2022/23 and 2023/24 external audits.
[10 Minutes]
Minutes:
The Chair welcomed Kevin Suter, Associate Partner from Ernst & Young LLP to the meeting. He gave a verbal update to the Committee, explaining the situation nationally regarding a backlog of audits in the local government sector, which was not unique to Arun or to Ernst & Young LLP. He explained that the recently published (on 24 November 2023) Select Committee report provided a good summary of the background to all the issues. This was something the Government were looking to address, and guidance was awaited regarding a possible system reset, where a date may be given by which all non-complete audits would be stopped, then the auditors would move to report anyway, which would be some sort of modified opinion on the accounts. Whilst waiting for the guidance Ernst & Young LLP had been working to clear as many historic audits as possible. They had prioritised pension fund audits and value for money responsibilities, which they understood would continue as normal. Ernst & Young LLP were not currently able to give a statement on what would happen with the 2022/23 Arun District Council external audit, as depending on when and if a reset date was given, they may not be able to complete this audit at all. He explained that they were working with other stakeholders such as the National Audit Office and Chartered Institute of Public Finance and Accountancy’s (CIPFA), who set the requirements of the accounting code, and were also looking at making changes to their various responsibilities so the whole system could come together and get back to meeting the targets. As soon as further information became available, Ernst & Young LLP would be liaising with Arun.
The Chair asked what the main reason for the build-up of audits was, and whether this was due to Covid-19, working from home or lack of resources either centrally or in local government. The Associate Partner explained the backlog of completed audits was due to a combination of factors, the problem was starting to build prior to covid mainly due to lack of resources, which was exacerbated during Covid-19 as staff were diverted from producing accounts to other activities such as distributing grants, and local authorities, and external auditors had not been able to catch up.
Members were then given the opportunity to ask questions. It was asked how this practically effected Arun’s finance department, and whether it would create a backlog for them to complete. The Group Head of Finance and Section 151 Officer explained they had sympathy for Ernst & Young LLP, however clarified that although the accounts were put onto the website slightly late, their working papers were in good order and had been available for audit for several months, so the resourcing issue mentioned by Associate Partner from Ernst & Young LLP did not apply to Arun. He explained if Ernst & Young LLP had to complete a full 2022/23 audit, this would inevitably be a lot of work for the finance team as, their assistance would always be required by the auditors to complete the audit.
The Chair sought clarification that with such a national backlog, the aim of national government would be to simplify the process and not increase the complexity. The Associate Partner hoped no more complexity to the accounts would be added whilst they were trying to work through the backlogs, and also long-term, and he reiterated that CIPFA, who set the accounting code of practice, were currently looking at what measures could be put in place to simplify this in the short term.
The Section 151 Officer added that over the years, the complexity and size of local authority accounts had greatly increased and this would inevitably make it much more difficult to clear audit backlogs under the current circumstances.
One Member asked whether Artificial intelligence would speed up the process. The Associate Partner believed this would be the case in the future, however this concept was only in the very early stages at the moment.
The Committee noted the report.