Agenda item

To receive a report from the External Auditor, the purpose of which is to summarise their preliminary audit conclusion in relation to the audit of Melton Borough Council for 2019/20.

The Committee will be asked to note the Annual Audit Results Report for the Year ended 31 March 2020.

Helen Henshaw, External Auditor (Ernst Young) introduced the report, the purpose of which was to summarise External Audit’s preliminary audit conclusion, in relation to the audit of Melton Borough Council for 2019/20.

Ms. Henshaw thanked the Director for Corporate Services and her team for their work to progress the audit, which was substantially complete, during what had been an unprecedented year, with  the pressures on audit resource in the public sector audit market, exacerbated by the Covid-19 pandemic.

Ms. Henshaw highlighted:

·         The audit was conducted to a materiality level of £543k, broadly in line with the planning report.  The performance materiality of £407k was used and the threshold of reporting the statements to the Committee remained unchanged at over £27k.

·         Concerning the status of the audit:

                      i.        Revaluation of assets remained an outstanding item.

                    ii.        The prior period adjustment had been concluded and there were no issues to report.

                   iii.        External Audit continued to work with the Monitoring Officer on contingent liability and no changes in the financial statements resulting from this was anticipated.

                   iv.        Receipt and review of management procedures in reviewing the completeness of related party transactions (concerning Member declarations of interests) required additional inquiries and procedures on those disclosed within the financial statements.  The Monitoring Officer had worked with External Audit to progress this work and no amendments were needed.

                    v.        The management representation letter, which was signed by the Council upon issue of the financial statements remained outstanding until the financial statements were approved for issue.

                   vi.        Subsequent events review procedures remained outstanding until signed off by External Audit.

                  vii.        Final manager and partner review remained outstanding.

                 viii.        External Audit were satisfied with the revised Annual Governance Statement (AGS), amended to reflect the less than satisfactory assurance ratings issued during the year and thenarrative report.  Final review of financial statements following any changes to the assets would be undertaken.

                   ix.        Work required by the National Audit Office (NAO) concerning the Council’s whole of government accounts submission was minimal and would be undertaken once the accounts had been finalised.

·         Concerning areas of risk identified in the Audit Plan.  There was no evidence of fraud in revenue and expenditure recognition in the 2019/20 accounts, no evidence of misstatement due to fraud or error, audit procedures for the valuation of land and buildings remained outstanding and the Council’s assets had been valued as at 31 March 2020 (the valuations had informed the draft financial statements).  External Audit would determine if the valuations had been based on appropriate assumptions etc. 

·         Concerning pension liability valuation, the impact on the Council in view of the McCloud and Goodwin cases was calculated at £102k and £107k impact.  This was not considered to be material in context of the balance sheet and overall value of the liability and there was no adjustment in the financial statements.  External Audit concluded that the going concern basis of accounting remained appropriate for the production of the accounts. 

·         External Audit proposed issuing an unqualified opinion following completion of evaluation work on the assets.

·         There were adjusted differences on cash and cash equivalents, note 3 (segmental income), note 4 (expenditure and income analysed by nature), debtors, and creditors.  There were other differences on £16k of redundancy expenditure.

·         Concerning the Council’s value for money arrangements.  The Council had procedures in place to respond adequately to matters of risk and there was no significant risk to the value for money conclusion.

·         Other reporting issues within the remit of External Audit included related party transactions, which were informed by Members declarations of interests.  Additional work by the Council and External Audit had been undertaken.

·         Concerning observations made on the control environment.  During the ‘substantive audit’ process control observations were identified and brought to Senior Management Team’s (as detailed at Part 7 of External Audit’s report).

·         The proposed fee for the work undertaken on the 2019/20 audit was set out at Part 8 of the report.  External Audit were not able to offer a refund on this fee, as the November signing off accounts date was a target not a deadline.  Audit needed to be undertaken to the appropriate quality and standard and placing deadlines on the production of audit opinions would undermine the independence of auditors.

During discussion the following points were noted:

·         Members thanked External Audit for their work and production of a comprehensive report.

·         External Audit’s overall conclusion had been positive in that the Council had proper arrangements in place evidencing it made informed decisions and deployed resources to achieve planned or sustainable outcomes for taxpayers and local people.

·         Members noted Ms. Henshaw’s explanation relating to External Audit’s proposed fee for 2019/20, commenting that this had been a significant increase compared to the 2018/19 fee.

·         The Public Sector Audit Appointment contract contained scaled rates for  auditors multiplied by the time incurred to address issues.  Anything over and above what was anticipated when setting the scale fee (prior period adjustments, increased work relating to ongoing concern, difficulty in auditing property valuations, audit resourcing etc.) fell into ‘scale fee variation’, resulting in the observed fee increase.  Inefficiency costs were borne by External Audit.

·         It was anticipated that the valuation issues would be concluded within the next couple of weeks.

·         Concerning the final fee.  It had been agreed to place a cap on the valuation element to avoid any further increase.

·         Non-audit work was subject to contracts negotiated with Senior Management Team separately.  Such work was governed by regulation and requirements which could change each year.

Audit and Standards Committee NOTED the Annual Audit Results report for the year ended 31 March 2020.