Agenda item

Ernst Young, the External Auditor to present the 2019/20 Audit Plan which includes an analysis of key risks, the audit strategy, reporting and timescale.

Ernst Young, the External Auditor

(a)  presented the 2019/20 Audit Plan (copies of which had previously circulated to Members), which included an analysis of key risks, the audit strategy, reporting and timescale;

(b)  gave an overview of the report, detailing its scope and highlighting the main items covered as follows:-

                      i.        the audit process and strategy, including mandatory procedures,   in  relation to reviewing and reporting on the Council’s financial  statements and its arrangements for securing economy, efficiency and effectiveness in its use of resources (value for money).

                    ii.        this Council’s responsibilities in respect of preventing and    detecting fraud  and error.

                   iii.        External Audit’s opinion on the Council’s financial statements and assessment of risks.  The risks identified were:-

·         significant risks:  misstatements due to fraud or error and fraud in revenue and expenditure (inappropriate capitalisation of expenditure).

·         other risks:  identified as pension liability valuation, valuation of property and assets (common across all local authorities), IFRS 9 financial instruments and IFRS 15 Revenue from contracts with customers (two new accounting standards, which had been implemented this year across the public sector and elsewhere).

                   iv.        External Audit’s approach to these risks.

                    v.        Having considered both the potential financial impact of the issues identified and the likelihood that the issues would be of interest to local tax payers, the Government and other stakeholders, the External Auditor confirmed there were no significant risks to value for money.  The Council had a good record of meeting budget and identifying savings.  A financial resilience assessment would be undertaken to determine whether the level of reserves forecasted by the Council in the medium term were sufficient to address the budget gap.

                   vi.        the importance of External Audit maintaining its independence and objectivity at all times, highlighting the ‘self review threat’ posed by undertaking non-audit work on the Council’s housing benefit subsidy claim.  External Audit were satisfied that their fee of £10,400k for this work did not breach its thresholds or impair its judgement.

                  vii.        the fees proposed for the audit and non audit fees.  There was a proposed additional fee of £875 for a restatement on the expenditure funding analysis note.  The Council had been advised of this at an early stage.

A Member highlighted the £18m pension fund deficit, asking what this large sum represented.  Was it modest, normal or an excessive figure?

The External Auditor advised that the sum was not unusual and most local authorities held an audit portfolio with a net pension liability.  £18m represented an accounting judgement (from the previous year), which involved complex estimation and could be subject to material differences, particularly on assets.

The Director for Corporate Services added that a revaluation of the pension fund was undertaken every three years.  The next revaluation was due to be undertaken this year, ready for the 2020/21 budget.  Leicestershire County Council (LCC), as the pension fund authority would have their whole pension fund valued and it would be broken down between the organisations which were members of this fund.  Some organisations were a higher risk (due to outsourced work or having a very small number of employees as members of the pension fund) but this Council was typical in view of all members of the pension scheme, seeing recommended annual increases from LCC of 1% each year in employer’s contribution to the fund.  The revaluation considered gender, life expectancy, return on investment etc.  Interest rates and returns had been low.  This resulted in deficits on pension funds.  The aim was to address deficits over a twenty year period (recalculate every three years over twenty years).

The Member queried if this Council was more at risk by being part of LCC’s pension fund.  The Director for Corporate Services advised that the Council benefited from LCC’s bigger investment holdings and its  risk, contribution and deficit was assessed as an individual organisation.  Nationally, pension funds had been encouraged to combine.

The Member queried if LCC would be required to consult the Council should it wish to combine its pension fund with another authority.  The Director for Corporate Services advised engagement between LCC’s pension fund and employers/employees was through Councillor Malise Graham, who represented all district councils in Leicestershire on the Pension Board and also members of the pension fund were able to attend the various meetings which took place.

Another Member queried whether the proposed additional fee of £875 for a restatement on the expenditure funding analysis note depended on officers undertaking their work efficiently.

The External Auditor confirmed that the proposed fee reflected an anticipation of no significant errors, the accounts being consistent with the prior year, a good set of working papers provided for audit and prompt responses to audit enquiries).  Anything falling short of this expectation would trigger an additional charge.

A Member asked if earlier deadlines and additional work posed a risk to the necessary audit work being completed on time.  The External Auditor advised that additional pressure was placed on both External Audit and officers.  External Audit had to review the way they delivered their audit, bringing more of their work further forward in to the financial year.  Prioritisation of work was essential.

Another Member asked what the consequences were of failing to meet earlier July deadline.  The External Auditor advised that he was unaware of any financial sanctions placed on councils for this.  There were responsibilities and expectations on both External Audit and councils to meet deadlines.  There would be reputational consequences.  The Director for Corporate Services added that failure to meet the deadline would affect staff morale and drain resources.  There would also be scrutiny focus on this.

There being no further comments or questions from Members, it was

RESOLVED that the report be noted.