Agenda item

The BDO representative reported that their Audit 2018/19 completion report presented to this Committee in September 2020 highlighted that the quality of the draft accounts and documentation presented for audit had been poor, particularly in respect of group consolidation which was complex and had been completed by the Council for the first time that year. Subsequently the then Finance Director and Section 151 Officer had presented a report to this Committee in May 2021 on a joint ‘lessons learned’ review to understand why the 2018/19 audit had been significantly delayed.

As a consequence of this, further audit work was required which resulted in additional audit fee implications for the Council . Following the completion of the audit, the matter was discussed with the former Section 151 Officer who agreed the imposition of an additional fee in July 2023 of £301,990, over and above the scale fee of £127,801, which had been paid, as set by Public Sector Audit Appointments Ltd (PSAA)

It was noted that PSAA were contractually responsible for appointing external auditors to local authorities, and under the terms of those appointments they set the scale of fees and additionally required that proposals to vary set scale fees were submitted to them for approval  for independent assessment as part of due diligence. As part of that process the additional fees were required to be initially discussed at a granular level with the Section 151 Officer prior to being presented to Members.

Appendix 1 to the covering report summarised the breakdown of the additional fee made up of £262,313, representing the substantial additional scope of audit procedures and increase in associated managers and partners time, together with the sum of £39,677 representing the audit work connected with the group accounts, which as reported had not been reflected in the original scale fee. BDO confirmed that until the additional fee was approved by PSAA an invoice would not be raised.

Opening up to discussion a number of questions/points of clarification were sought. Firstly, BDO clarified that whilst there had been detailed conversations with officers over a long period about the additional work undertaken on the audit, and that rather than hold up the completion of the audit, it was recognised that it had not been possible at that stage to quantify the further costs, other than for both BDO and Council officers to accept that additional fees would be incurred, something that had been flagged up in previous reports to Members.

The Chair emphasised the importance of accountability and transparency regarding fees. Consequently, whilst acknowledging the point made about the fees being independently assessed and recognising that element relating to the group accounts was understandable, given they had not previously arisen in this Council, she was concerned that the report did not provide sufficient information/details for Members to justify the remaining element of the additional fee, namely the £262,313.

In response the BDO representative stated that in additional to the points made in the Executive summary as to the key issues reported for 2018/19 it was worth highlighting that given the significant issues that had arisen concerning material misstatements, internal control deficiencies and Prior Period Adjustments (PPA’s), it was necessary to engage the most senior people in the team to review those areas and engage high level technical consultants too. The implications being that their time was far more expensive and not anticipated when the scale fee had been set.

In those circumstances the Chair asked what the implications would be if Members were not prepared to accept the level of additional fee being sought? The BDO representative replied that in accordance with the agreed process although they would still make their submission, the Council would be in its rights to make through this Committee, its own representations to PSAA, who in turn would likely contact the Council to discuss the matter.  Ultimately as the arbiter in these matters it was for the PSAA to form a view and make a final decision which would be binding on all parties.

Members echoed the Chair’s views that given the role of the Committee in this matter it would have been helpful for BDO to provide a more detailed breakdown of the additional spend, given the large sum involved in the context of the Council’s finances at this difficult and challenging time. This was acknowledged and agreed by the BDO representative.

The 2018/19 accounts were as things stood the last time the Council’s full accounts had been audited and signed off.  The adjusted and unadjusted errors highlighted in the report were highly significant such as the in-year dedicated schools’ budget being double accounted, corrections of both over receipting of purchase orders, non-compliance with the Code of Accounting Practices in respect of asset classification as well as the reclassification of historical spend. In those circumstances what confidence could Members take that the accounts for 2019/20 and future accounts would not experience similar discrepancies and problems? 

The BDO representative responded that their report findings and PPA’s were all corrected in the 2018/19 statements and where these impacted the balance sheet the closing balances from that period were rolled forward into the 2019/20 accounts now being audited; and importantly these would have been corrected. In addition, the revised 2018/19 accounts which were now signed off,  had what was known as a ‘third balance sheet’, where the prior period figures had been corrected with details of what those PPA’s were, and where they impacted the accounts. Reassuringly with the exception of asset clarification, which BDO would flag up as a risk in future audits, there appeared not to be a repeat of the issues highlighted from the 2018/19 audit.

BDO repeated the view that the Committee was justified and entitled to express a view to the PSAA on the appropriateness of the additional fee level, irrespective of the professional opinion of the Section 151 Officer, as the PSAA would carry out its own detailed due diligence to test the validity of the claim.

The Committee expressed the view that given that BDO had been in discussions with officers for a considerable time as to the additional work they had been required to undertake with the audit, surely the additional costs should not have come as a complete surprise and to that extent should have been anticipated and budgeted for? Also why was it only now that Members were being made aware of the situation?

The S151 Officer did not disagree with the views expressed by Members but having only been in post for a short while, she found it difficult to comment,  but did observe that on the basis that the formal notification from BDO as to the final costs was not until July this year, this meeting was the first opportunity to make Members aware. As for the additional costs, as far as she was aware they had not been budgeted for, and would have to be found, a situation which was not acceptable. She would confirm that position in writing. 

Moving forward an independent person had already been commissioned to Q&A later year’s accounts, from which the S151 Officer was able to confirm BDO’s comments that the previous issues that had arisen from the 2018/19 audit had not seemingly been repeated in the 2019/20 accounts, with the one outstanding issue concerning asset clarification to be resolved once and for all. She reassured the Committee that her team were committed to ensuring the past problems were not repeated. That said officers and BDO did acknowledge that for the work on the 2019/20 audit a further smaller additional fee would be generated. The S151 Officer assured the Committee that she would look to report back to a future meeting with an estimate of the costs and budget for them accordingly. Furthermore,  BDO agreed to provide initial details and estimates as soon as possible and before the departure of the current CAO to enable him to validate the additional work carried out . The BDO representative added that at this time until more was known as to the Government’s backstop solution to the audit backlogs as detailed in the previous minute, it was not possible to anticipant how the external audit of accounts in 2020/21 and onwards would proceed. 

The Committee NOTED the report.