Agenda and minutes

The Independent Advisor (IA) disclosed that he was engaged as a consultant to Public Sector Audit Appointments (PSAA) which appoints the Council’s external auditor. The IA disclosed that he was advising on the financial evaluation on the forthcoming tender and the potential impact on the time that will be required as a result of changes in auditing and accounting standards requirements.

The IA assured the Committee that it did not affect Barking and Dagenham Council or the appointment of an external auditor. The Chair agreed that this was not a disqualifying interest and permitted IA to continue to participate in the meeting.

The minutes of the meeting held on 19 May 2021 were confirmed as correct.

The Committee requested that the following edits be made;

·  The fifth paragraph of the minutes referred to ‘Housing Benefit payments’. The Committee agreed that this be amended so that it refers to ‘a Housing Benefit subsidy payment’ which is a more accurate description.

·  The sixth paragraph of the minutes referred to ‘the statutory deadline for completion of the Council’s audit.’ The Committee noted that Regulation 10 of the Accounts and Audit Regulations 2015, does not establish a deadline for completion of the audit but stated that if the audit was not completed by a specified date, the Council should publish a statement that it is not able to publish the audited statement of accounts with the reasons given. The Committee agreed that the wording be changed to refer to ‘the statutory target for completion of the Council’s audit.’

·  The Committee observed that the seventh paragraph referred to ‘Housing Benefits Audit’ and stated that ‘the audit will be completed’.  The work undertaken by the external auditor on the Council’s housing benefits claim was not an audit designed to give a true and fair view opinion but ‘certification work’.  The Committee agreed that the wording be changed to refer to ‘housing benefits certification’ and to state that ‘the certification work will be completed.’

The minutes of the meeting held 12 July 2021 were confirmed as correct subject to the edits listed.

The Committee requested the following edits;

·  In the ninth paragraph of the minutes on ‘Accounts Audit Update 2019/20’ there was reference to ‘audit related work.’  This phrase had a particular meaning in the context of external audits which the Committee agreed was not appropriate in the context it was mentioned. The Committee agreed that the wording be amended so that it read ‘work relating to providing documentation to support the financial statements.’

·  The fifth paragraph of the minutes referred to ‘the statutory deadline for completion of the Council’s audit.’  Regulation 10 of the Accounts and Audit Regulations 2015 does not establish a deadline for completion of the audit but rather provides that if the audit is not completed by a specified date, the Council should publish a statement that the Council is not able to publish the audited statement of accounts with reasons. The Committee agreed that the wording be amended to ‘the statutory target for completion of the Council’s audit.’

·  The sixth paragraph of the minutes referred to ‘Housing Benefits Audit’ and states that quote ‘the audit will be completed.’  The work undertaken by the external auditor on the Council’s housing benefits claim is not an audit designed to give a true and fair view opinion but ‘certification work’. The Committee agreed that the wording be amended to read as quote ‘housing benefits certification’ and to state that ‘the certification work will be completed.’

·  The seventh paragraph of the Minutes refers to ‘accounts for 2019-10’.  This should instead refer to ‘accounts for 2019-20’.

The minutes of the meeting held 28 September 2021 were confirmed as correct subject to the edits listed.

The Committee requested the following edits;

·  That the second paragraph on page eighteen of the minutes and the second and third paragraphs on page nineteen be amended to show that the Council had engaged Grant Thornton to undertake certification (as opposed to audit) work on claims and returns rather than BDO doing so and the relationship is directly between the Council and Grant Thornton.

·  The fourth paragraph on page eighteen could be wrongly construed as it  states that ‘BDO noted that Reside had different sectors that required differing accounting requirements. The Committee agreed that the wording be amended to read ‘BDO noted that the Reside Group comprised different entities for which the accounting requirements differed’

The minutes of the meeting held 31 January 2022 were confirmed as correct subject to the edits listed.

BDO had provided an Interim Audit Completion Report, following the publication of the meeting papers, which was published as a supplementary agenda.

BDO highlighted that a key issue in the report related to the accounting for infrastructure assets. BDO drew members’ attention to the Property, Plant and Equipment (PPE) section of the audit report which explained that there was an emerging issue in relation to accounting for infrastructure assets. The Chartered Institute of Public Finance and Accountancy’s (CIPFA) local authority code of accounting practice (the Code) required that component accounting, where component parts of an asset were treated and valued differently owing to differing economic lives, must consider any replacement or upgrading of a component part during the overall asset’s life.

Therefore, the value of the replaced component part must be derecognised from the overall value of the asset and replaced with the value of the replacement component part of the asset.

BDO explained that over time it had become an accepted norm in local government accounting whereby highway authorities do not account for infrastructure assets on a component basis. This was due to the difficulty of obtaining relevant details relating to the life of an infrastructure asset such as a road. Instead, assets would often be brought to the balance sheet at cost and, where components were replaced or upgraded, the new component’s value would be added to the balance sheet without the value of the replaced component being derecognised.

This results in the gross book value of the entire asset increasing and the accumulated depreciation of the asset also increases over time, with no de-recognition, which could result in a material misstatement of the gross book value and the associated accumulated depreciation over time. Therefore, in these circumstances, the note in the balance sheet on PPE could have a material disclosure misstatement within it.

BDO further went on to explain that, where the replacement component was of similar value to the original component and had a similar economic life, it was possible that the net book value, of the assets in question would not be misstated. However, where the replaced component was of a differing value or had a differing useful economic life, this could create a mismatch between the gross book value and the accumulated depreciation value which, in turn, could result in a material misstatement of the net book value.

However, the potential level of misstatement of gross book value, accumulated depreciation and net book value was difficult to quantify as sufficiently detailed records did not likely exist. BDO stressed that this issue was not unique to Barking and Dagenham Council but that it was understood that the Council were not in a dissimilar position to that reported elsewhere.

BDO explained that this had recently been drawn attention to  in light of the Financial Reporting Council’s (FRC) sanction of a public sector audit firm for not properly considering the accounting for components of assets within its audit strategy. This has led to auditors reviewing their approaches  ...  view the full minutes text for item 39.

The Head of Assurance (HoA) updated the Committee. It is the responsibility of all managers to manage risks within their remit. The HoA explained that he provided support and advice to managers in risk management but is not responsible management of risks themselves. Each risk owner had undertaken an assessment of their area, and this was discussed at a corporate level to ensure regular monitoring.

There were fourteen risks on the risk register at the last review and this remains the case at this review. One risk, relating to data centre failure, had been removed whilst another risk, relating to cybersecurity compromise had been added.

The data centre failure risk was removed because the Council had improved its IT environment and the Council’s core infrastructure was cloud hosted. The HoA stressed that the risk had not been completely eliminated and remained under review, however it was no longer a core risk.

In relation to cybersecurity, the HoA noted that three local authorities had been affected by high profile cybersecurity incidents which affected service provision, data loss or compromise and imposed substantial financial costs.

The Committee noted the update.

The Head of Law (HoL) updated the Committee and drew the Committee’s attention to the status, outcomes of actions that had been taken.

The Committee noted the report.

The Committee noted the work programme.