The Chief Accountant (CA) informed the Committee that the audits of the Council’s subsidiary companies for the fiscal year 2021/22 were on track to be completed by the end of December 2022.
The BDO Representative updated the Committee and highlighted the following;
· The previous Senior Audit Manager left BDO in July 2022;
· Handover was hindered because of periods of sickness; and
· The replacement Senior Audit Manager was in the process of completing a detailed review of work yet to be completed, as well as work already completed and subject to earlier review.
The review had, so far, found the following;
· Balance sheet sections were completed though there had been a number of issues raised relating to property, plant and equipment (PPE);
· PPE issues that needed to be addressed included those from the External Quality Reviewer (EQR) that related to approximately to 25% of issues already addressed. BDO and the Council would focus on the ‘harder’ points first such as:
· Income and expense areas still to be reviewed
· Pension Fund still to be reviewed – this was the more complete area, and BDO had agreed to focus on main audit first
The BDO Representative then discussed the issue of infrastructure noting that there had been an amendment to the CIPFA/LASAAC Code which removed the need to report gross cost and gross accumulated depreciation in notes to the Statement of Accounts. The Financial Reporting Advisory Board (FRAB) approved this on 18 November 2022.
As a result, a Statutory Instrument was presented to Parliament on 30th November 2022 and it was expected to come into force on 25th December. CIPFA were preparing a bulletin to accompany the amendment and statutory instrument. BDO anticipated that this would be completed by January 2023 and, as a result, the position in relation to infrastructure would be completed at the same time. This in effect would act as an override since auditors would not be required to report gross costs and gross accumulated depreciation on balances brought forward.
BDO’s Engagement Lead for 2019/20 and 2020/21 was on sick leave; however, it was anticipated that the Engagement Lead would return in the New Year. Where that was not possible, a new Engagement Lead would need to be appointed and would be required to restart the review process which would cause considerable delay the audit.
The BDO representative also confirmed that a new Senior Audit Manager would be appointed from the end of January 2023 as the existing manager was moving to a new role within BDO.
As a result of the absence of the engagement lead and the change in Senior Audit Manager, it was now unlikely that BDO would be able to complete all of the remaining work by 28th February 2023 as previously indicated. The BDO representative expressed regret at the latest delay but stated that BDO believed that they would be in a position to report in March 2023. However, the BDO Representative added that, whilst the 2020/21 audit could start in March 2023, it would have to be suspended soon after owing to NHS related audits taking place. Major work would not start until the NHS audits were completed which would be in Summer 2023.
The Committee expressed its disappointment and frustration at the latest delay to the 2019/20 audit and expressed scepticism that the March 2023 deadline would be achieved. The Committee also voiced concern at the dependence by BDO on specific members of staff to complete the audit.
BDO responded that staffing, resourcing and capacity was affected by a UK wide crisis in local authority auditing. There was an insufficient number of qualified persons to carry out the work and thus there was no spare capacity. Given the small pool of qualified individuals, where a staff member was ill or left, they often could be replaced quickly and this negatively affected audits. Additionally. given the qualifications, experience, skills and clearance required to audit local authorities, it was difficult to recruit replacements.
BDO added that the resource being invested in the audit was greater than the PSAA contract envisaged. This requirement for greater resources had contributed to the audit delay. In response to questioning, BDO said that valuations and treatment of group accounts, among others, had created more work than had been anticipated. BDO had opted not to bid for future PSAA contracts as it wanted to focus on the completion of outstanding audits.
The Strategic Director for Finance (SDF) stated that the Council was working closely with BDO to outline actions and mitigations in order to ensure that as much work was completed before the Engagement Lead’s possible return in January 2023. The Council had already taken action to address issues raised in the 2018/19 audit and would continue to do so.
The CA added that 2022/23 fiscal year would be the last year of BDO’s PSAA contract and the next contract would be undertaken by a new company. The CA noted that further resourcing issues may arise as the shortage of qualified personnel continued. The CA also warned that NHS audits, which took place in Spring, were showing signs of slippage in their schedules which could create further pressure on local authorities.
In response to questioning, BDO said that an individual had been identified to take on the role of Senior Auditor Management when the existing one leaves in January 2023. In relation to the Engagement Lead, in the event that they cannot return, then it would be taken over by another Audit Partner who was already identified. However, owing to capacity constraints, the ability to carry out preparatory work for this possibility could not be undertaken in December 2022.
The Committee agreed to the Chair’s proposal that the meeting scheduled for 7th February 2023 should be held to enable the Committee to be kept informed of the 2019/20 Audit’s progress and to discuss any further issues that may arise. The Committee also agreed to move the meeting scheduled for 6th March 2023 to later in that month.
The Committee noted the update.