Agenda item

Further to the report the Committee received on 23 July 2019 (minute 3 refers) on the draft statement of accounts, the Council’s Chief Accountant presented a report on the progress made on the external audit of 2018-19 Accounts. The delay in completing the audit was due to the external auditors, BDO, identifying adjustments needed to the draft accounts as a result of misstatements made, which were down to a number of reasons, including the complexities of the Council’s Group structure, with the group accounts consolidating 17 subsidiaries. The audit of the accounts for all subsidiaries, except Reside, were complete. The finance team had accepted amendments to the accounts and subject to further work, was on track to achieve an unqualified opinion on the Statement of Accounts and the Value for Money Conclusion. The Chief Accountant added that BDO had raised the bar this year by undertaking greater scrutiny of the accounts, and the finance team would be working constructively with BDO to complete the audit and reflect on what needed to be put in place to ensure a smoother, more timely process for next year’s external audit.

A BDO representative referred to papers circulated to the Committee earlier in the day (referred to as ‘Supplementary 1’) which provided an update on the audit from BDO’s perspective. Council officers had been very cooperative in working with BDO in providing them with information to progress the audit and the final audit completion report would reflect on how BDO and the Council could work more effectively going forward. This year’s audit had been subject to extra processes around quality control as a result of regulators raising the bar. She summarised the findings of the audit so far, highlighting the risks of misstatements and deficiencies in internal control. However, she assured members that nothing had been identified to suggest that the accounts would be deemed materially inaccurate and based on the actions being taken by council officers, it was envisaged that the Council would achieve an unqualified opinion on its external audit. 

Members expressed serious concerns regarding the findings of the audit to date, referring to the risk of material misstatements and shortcomings in internal control, and the time remaining to complete the audit. The responses provided to a number of questions posed by Members regarding the completion of the audit are set out below:

·  The Council’s Chief Operating Officer (COO) stated that the meeting of this Committee scheduled for 22 October 2019 had been cancelled as it became clear to officers prior to the meeting that it would not be quorate due to a clash with another meeting, and the meeting scheduled for 18 December 2019 was cancelled due to its proximity to the general election. She assured members that the work to progress the audit had continued and the cancellation of these meetings did not contribute to the delay in completing the external audit.

·  The COO stated that Members were right to raise concerns regarding the nature and number of misstatements; however, there were complex reasons for this; for example, the audit identified prior year adjustments which meant that accounts that had previously been signed-off had to be revisited, which was a new area of work and required time to understand. Furthermore, the Council, having undergone a massive transformation programme in recent years, was now a very complex organisation with 17 different subsidiaries, which further complicated the process. Nevertheless, officers were working hard to correct the errors identified and the Council was still anticipating an unqualified opinion on its accounts.

·  The BDO representative stated that there was also a broader context behind the delay in completing the audit, referring to the reduced timeline to complete audits for all local government bodies, which had had a substantial impact on local government bodies nationwide, and had caused significant concern amongst auditors generally. Members of various national audit bodies had formed a group to review the impact of the delayed audit opinions, particularly the potential knock on effect on the audit process over the coming years.

·  The BDO representative stated that the field work for completing the audit was almost complete; however, discussions with the Council’s finance team were ongoing as to additional testing and quality reviewing. When BDO is in a position to give an opinion, its audit completion report containing all its findings would ask for confirmation of any statements that management decide not to correct, and this Committee would need to accept them, or otherwise. It was felt that approximately another two months was needed to get to this stage.

In response to further questions, it was confirmed that:

·  ‘Prior period adjustments’ by their nature, were always ‘material’;

·  After the completion of the audit, the Head of Assurance would meet with the external auditors to discuss whether the deficiencies identified in internal control posed a risk that needed to be incorporated into the Council’s Corporate Risk Register for next year; and

·  Ideas for presenting accounts and audit information in a simpler, more user-friendly way were being considered by those in the sector, and it was likely that it would be one of the issues arising from this year’s audits to develop further.

The Independent Advisor to the Committee suggested that given the nature of the concerns raised, the Committee consider requesting an additional meeting to receive the final audit report and also a report on the planning for next year’s audit, including the learning from this year and the timescales involved. A discussion on when the Committee should receive the audit completion report took place and it was suggested that it may be possible for the report to be presented at the prescheduled meeting on 27 April 2020, depending on the number and nature of the agenda items, or alternatively, an additional meeting could be arranged for earlier in April. It was noted that the agenda papers would have to be published and circulated at least five clear days before the meeting as stipulated by the Access to Information rules.

The Committee resolved to agree to request that officers confirm as soon as possible the date of the meeting that would receive the final audit completion report for approval.