Agenda item

Update on External Audit Delivery


The BDO representative updated the Committee on the status of the 2019/20 audit of the Council’s Accounts and proposals regarding the delivery of the audits of the Statement of Accounts for the 2020/21, 2021/22 and 2022/23 financial years.


By way of background the BDO representative recalled previous progress reports brought before the Committee since March 2022 in respect of the various stages of the 2019/20 audit. Although the Council published its draft Accounts for 20219/20 in August 2020, these could not be progressed by BDO as there were a significant number of outstanding issues as detailed in the report as well as the absence of complete and accurate Group Accounts and supporting working papers for audit purposes. Alongside these issues there were resourcing challenges for BDO (unplanned long-term sickness and staff resignations) which had contributed to the delay in progressing the audit, and which had previously been reported to Members as well as discussed separately with the Chair, the Independent Member and the then Section 151 Officer and Chief Accounting Officer (CAO). On a positive note, a new Audit Manager had been appointed who would be assigned the Council’s audits. 


In October 2022 BDO reported that the combination of the above factors had caused delays in progressing the audit over that summer, in addition to which they highlighted a technical matter that had been identified that affected nationally all local authorities with material infrastructure assets on the balance sheet, of which LBBD was one. This matter required engagement of audit suppliers, NAO, CIPFA, local authorities and the Financial Reporting Advisory Board to determine an accounting solution for local authorities to implement.


BDO’s revised timeline for completing the audit was set as March 2023. However, as CIPFA did not announce the details of the infrastructure accounting solution until January this year, and as this required additional work that would materially affect the audit, that deadline could not be achieved. BDO provided an update report to the last meeting in June which confirmed that whilst the audit was progressing several key matters were still outstanding as detailed in the report as presented. 


On the basis that the Council’s draft infrastructure assets working papers were received before September (duly received in July) the update report proposed that that the audit would re-commence in September, be finalised in October, reported to management in November with final audit results presented to the Committee in January 2024. 


Since the last meeting BDO had met with officers to discuss the working papers, their audit approach and experiences from work done in other local authorities in this area. Additional delays in completing other NHS audits had reduced the capacity of BDO to oversee the recommencement of the Council audit in September. A subsequent meeting with the current S151 Officer was held to discuss the situation and the position was that although it was not possible to confirm the full picture of the rescheduled audit programme, the BDO representative was able to confirm that the infrastructure assets audit had started this week, and that the senior audit team review would re-commence at the beginning of November 2023. The BDO representative committed to sharing a fully revised timetable for audit completion as soon as it was available.


BDO recognised and supported the S151 Officer desire to complete the 2019/20 audit as soon as possible and certainly ahead of any date fixed for the backstop solution. In that respect the BDO referenced the DLUHC outline proposals on the backlog solution as appended to the report, and specifically the yet to be confirmed date of 31 December 2023 to complete audits prior to and including 2019/20, as well as subsequent dates for the 2020/21, 2021/22 and 2022/23 audits.  If, however for whatever reason, the December date (if and when confirmed) was not met, then BDO would have to consider an interim solution such as issuing a qualified audit opinion. Assuming however the 31 December deadline was achieved, then based on the Council’s meeting timetable, an extraordinary meeting of the Committee would need to be arranged to sign off the accounts on a date to be confirmed.


The S151 Officer clarified that when she came into post in July it was clear to her that the audit work associated with the accounts needed to be signed off before the CAO left the organisation on 19 October (having secured a new position in another authority). She met with BDO at the beginning of August and made it clear that when the auditors confirmed that the recommencement of the audit work would not start on 4 September as previously agreed, she stated that this was both disappointing and unacceptable, and that given her fiduciary duty to local Council tax payers to provide value for money, she required the audit completed and signed off before the expiration of the backstop date so as to avoid receiving a qualified opinion and inevitably incurring additional audit costs. This was placed in writing to BDO on 8 September.


In response to the report Members asked the date when the Council’s Accounts were last fully audited. The BDO representative confirmed that it would have been the 2018/19 accounts which were signed off and reported in 2020. That meant the Council’s finances had not been audited properly for more than 5 years, which was very concerning given the significant changes that had taken place in the Council in the intervening period. To that extent it was difficult to know whether the Council’s finances were in a good place at this time, and to that extent Members had little confidence in the whole process, with the blame being seen as equally shared between Council officers and the external auditors.


Given the absence of the CAO who had been unable to attend the meeting and seeing the S151 Officer was relatively new, she did accept there was blame on both sides, however when it came to when and what information was provided to BDO,  matters were not necessarily as straight forward as may have come across to Members in the report, particular when read in isolation. With the support of the Chair the S151 Officer proposed that although it would not alter the facts, for their information she would prepare and circulate to all Members of the Committee a detailed briefing note on the chronological order of events reported this evening and at previous meetings so that Members could have a greater understanding of the reasons for the delays.


The S151 Officer agreed that the Council absolutely needed the external audit to be completed in a timely basis, and certainly ahead of any new arrangements to deal with the backlog, not least because if any errors were identified and if they materially impacted on the General Fund, that could result in an adjustment and charge against this year’s Accounts, something she would not want to occur given the Council’s challenging financial position. That said until the audit was completed it would be unwise to speculate about how this year’s budgets might be impacted and how any deficit would be funded.


The BDO added that in their experience most outstanding issues arising from previous account audits would not have a ‘bottom line affect for future years General Fund budgets.


Reference was made to the audit fee and additional charges. This matter would be addressed in the subsequent report (see minute 13 below).


Notwithstanding the comments of the S151 Officer about shared responsibility for the delays, the report of BDO indicated that there had been significant fallings in the Council through delays in providing information, material misstatements, non-compliance with codes of practice as well as significant deficiencies in the Council’s internal control environment. These matters required an explanation. In addition, the Council did not appear to have staff stability in the Finance team to respond and provide information to BDO in a timely fashion. With the possible 31 December 2023 backstop deadline looming, what confidence could the Committee have that the audit would be completed and signed off by that date?


The S151 Officer clarified that she had not suggested that anything BDO had stated in their update report was factually incorrect. It was more about where the Council were today in seeking to close off the 2019/20 accounts, and things that were not in the report which had already been discussed informally between officers and BDO. In respect to staffing an interim appointment to replace the CAO had already happened and handover arrangements were in place to ensure as smooth a transition as possible. The person taking over had a wealth of local authority finance experience. That said given the tight deadlines and so as to complete and sign off the audit, would require BDO to respond in a timely fashion as to the further information they required during the period before the CAO leaves.


The BDO representative concurred that they were committed to resolving this matter as soon as possible and were working to get all outstanding queries over to the Council in the coming weeks and the necessary fieldwork completed before the CAO leaves the Council. BDO recognised the timeframes were extremely tight and with Xmas leave etc it would be very challenging, but she reassured the Members that like the Council, they were committed to complete and sign off the accounts by the backstop date.


The Chair asked as for the rationale for prioritising the NHS audits over local authority audits? The BDO representative described it as rather than prioritising, the decision was taken by the BDO Executive to continue to deliver the programmed NHS audits until a finish. The view taken was the more audits left incomplete the greater the risk of spreading resources too thinly and then ultimately in general not completing audits well, and on time.  Also, generally the NHS audits were less complex than local authority audits, so it made sense to complete them sooner rather than later. 


As to the appointment of a new Audit Manager to complete the audit of the 2018920 Accounts, the Chair enquired as to whether they were fully aware and onboard regarding the issue of the backstop date and the pressures and deadlines they would be expected to work to achieve hopefully a successful outcome?  The BDO representative explained that the new member of staff was not new to BDO but new to the team, who collectively would be fully briefed regarding the backstop and the implications and imperatives etc.


The Chair requested that in working to the 31 December deadline it would be helpful if BDO could produce a revised plan setting out the days/ key milestones to share with herself and the S151 Officer so that it could be used to hold both BDO and officers to account. She also requested the S151 Officer to set up a bi-weekly call with herself and BDO to monitor progress. The BDO representative was happy to produce such a schedule with real time updates to be shared with the Committee.


Concluding the item, the S151 Officer made the comment that the audit backlog was a nationwide problem brought about through predominately a shortage of external auditors in the public sector, and a lot of audit firms including BDO had  now gone global to attract more resources to support the sector. 


The Committee NOTED the report.



















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