Agenda item

Council's Accounts Audit Update - 2019/20 - 2022/23

Report to follow


Following the publication of the agenda the Chair referenced that in respect to the update on the latest position regarding the audits of the Council’s Accounts 2019/20 to 2022/23 a supplementary report from the Section 151 Officer had been issued. This provided commentary on the outgoing external Auditor (BDO) report (similarly presented as a supplementary) which included a proposed revised timeline of 31 August 2024 to complete their audit of the Council’s Statement of Accounts for 2019/20, together with the breakdown of the 2018/19 additional fees, something requested at the last meeting (minute 13 refers)


The Section 151 Officer introduced her report by stating that since the last meeting it had been announced that subject to consultation, the intention was to extend the original backstop date of 31 December 2023 to 30 September 2024 for the completion of outstanding audits of accounts up to and including 2022/23. Consequently, the revised date put forward by BDO would leave the Council in an incredibly difficult position in the context of the now likely backstop date.


The Section 151 Officer reflected on the recent progress of the audit since her appointment. In May 2023 when the Committee received an update about the 2019/20 audit, the aim at that time was to achieve the sign off of the accounts by January 2024. The previous and current Chief Accountant had and continued to work closely with BDO to provide responses to queries in a timely fashion, in addition to which the Section 151 Officer had been communicating regularly with her contacts at BDO with the intention of getting sign-off by today’s meeting. She stated that even with the change of assigned audit partner at BDO, following the recent announcement of the impending retirement of the current partner, and the resultant handover period, she could not understand why the accounts would not now be completed and signed off until August 2024, given that the audit had now been substantially completed. 


Steve Blandon the new audit partner explained that the supplementary update report set out the revised timeline for when he expected to be able to issue an opinion on the 2019/20 financial statement of the Council’s Accounts. In order to provide an informed opinion, there was a reasonable amount of review work to be done on the completed audit work to date, alongside which he had a number of other audit responsibilities which impacted on his time, and therefore he felt the August deadline was a reasonable target date to set, based on the various steps set out in the report, which included a number of key milestones and dates.


Whilst appreciating Members’ disappointment at this news Mr Blandon felt it was important to provide what he felt was a realistic assessment of the timeline to complete the audit. He reiterated the Section 151 Officer’s comments about the proposed backstop, which was subject to a National Audit Office consultation, albeit it was likely to be agreed as 30 September 2024. Whilst he was confident of being able to conclude the audit by that date, he did not think the later audits (2020/21 and 2021/22) would be completed within that timeframe ahead of the formal handover to Grant Thornton, the newly appointed external auditors. He also made reference to the 2018/19 fee update which was included as part of the supplementary report, and which set out the final fee information, as had been requested from the last meeting.


The Committee repeated their disappointment that despite assurances and revised deadlines given at previous meetings, accounts going back approaching five years remained to be agreed and signed off. It left Members with little confidence that the August 2024 deadline set by BDO would be met, a situation described as both unprofessional and unacceptable.  To that end Members were keen to hear BDO’s views as to the remarks of the Section 151 Officer as set out in her report, that given the number of revised deadlines, one possible conclusion that might be drawn was that the change of new partner was now being used as a tactical measure to avoid BDO ever giving a formal audit opinion on the 2019/20 Accounts. 


What was also concerning to Members were the comments of the Council’s Legal Services on the report namely that the significant risk factors in the delay in completing local audits, multiplied by the fact that with the Council’s audits now several years behind the statutory target, meant that any signifiers of concern highlighted in the earlier audits would be submerged until the audits were completed.


Reference was made in BDO’s presentation on timelines as to workload implications of other audits. Understandably for the Committee its only focus was completing the Council’s audits. As regards the timetable presented by BDO, the programme of works planned for this month (January 2024) did not suggest there was any sense of urgency to move the audit forward. In general, looking at the planned timetable for this year left the Committee with little confidence that the 2019/20 audit would be completed by 31 August, as well as the probability that the subsequent years accounts would not be audited by the expected 30 September backstop date.


As for the information provided showing the final 2018/19 audit fee of £456,091 including the breakdown of the additional fee totalling £262,313, this would need to be discussed as would any additional audit fees for the subsequent 2019/20 Accounts, yet to be reported on by BDO. These were likely to be challenged by the Committee, subject to receiving an inhouse legal opinion as the powers for Members to do so.  In that respect the Chair was requested to forward the previous correspondence from the former Section 151 Officer confirming to BDO his agreement to the 2018/19 additional audit fee.


Responding to Members questions Lisa Blake, BDO’s outgoing audit partner provided the background and context to the lateness of the audit. She confirmed that at the time BDO had been fully committed and resourced to deliver the audit within the agreed timescales. However, from their position they maintained the view that the main reason for the delay in progressing the audit was because until July 2023 BDO had not received the infrastructure working papers, nor had the Council responded to a number of queries.


She stated that whilst it was not a blame game, she wanted to put on record that BDO had not in any way sought to deliberately hold up the progress of the audit as in her view there would be absolutely no benefit to either themselves or the Council in doing so. Once deadlines were missed and notwithstanding the flexibility of BDO to reschedule dates when things did not go to plan, as had been the case with this audit, it had become increasingly difficult to keep it on track especially when the programming of other audits significantly tested BDO’s available resources.


Whilst these matters had already previously been reported on by BDO to Members, what had since changed was that her recent decision to retire meant it was not possible to sign off on the audit of the 2019/20 accounts by this meeting. That responsibility now fell to Steve Blandon, who, as already indicated, required an extension of time to review matters, and be satisfied that the audit work completed was good enough for him to approve the accounts, seeing the Regulator placed a personal and professional responsibility on assigned audit partners signing off financial statements etc, and would, if deemed necessary, impose fines and sanctions on both the individual and BDO if audits were proved not to be conducted properly. That said the new date set by BDO was in her opinion a realistic and achievable time frame to agree and sign off the 2019/20 Accounts. 


The Section 151 Officer concurred with some of the reasons which had contributed to the past delays. However, she did challenge BDO’s remarks about the delays caused by the Council not providing the required information on the infrastructure assets in a timely fashion. Her understanding was that the reason for information not being returned until July 2023 was that as the infrastructure assets formed a new requirement from January 2023 as part of the overall audit, the Council had been awaiting support and guidance from BDO to what represented a highly technical and complex aspect of the overall accounts, and which proved not as forthcoming as she had hoped for.  The S151 Officer said that aside from the infrastructure asset matter, delays from December 2023 had predominantly been because of BDO not progressing the audit mainly due to long term staff absence and rescheduling.


Lisa Blake stated it was her who had been on long-term sick, and she had returned in February 2023. 


Recognising there would be a short delay caused by the handover from the outgoing auditor partner to the new partner, originally estimated to be up to one month, the Section 151 Officer’s main issue now centred on the reasons why BDO did not now feel able to conclude the audit of the 2019/20 Accounts until August, seeing that all the additional queries and information requested had by and large now been provided by the Council.


Following a question from the Committee regarding the potential for a qualified opinion and the effect on the final audit fees, BDO explained that should that situation arise, given the amount of work involved to provide a qualified opinion, all of which had to be sanctioned by PSAA, it was unlikely to have any bearing on the totality of the additional audit fee.

Whilst the focus of attention had rightly been on BDO’s responsibilities to meet their deadlines, Members were keen to hear and receive reassurances from the Section 151 Officer as to the lessons learnt, given the comments made at by BDO both at this and previous meetings that officers had contributed to the delay in progressing the audit by not responding to requests for information in a timely fashion. The expectation of Members was that internal processes and controls should be in place, as the timely completion of auditing the Council’s Accounts would be regarded as a significant risk management factor. As for the costs it was seemingly obvious that given the increasing complexity of the Council’s Accounts that the fee would increase, and that consequently the Council should have budgeted for the increase.


The Section 151 Officer reiterated that all the information as to the infrastructure assets was submitted to BDO last July. The reference as to what was returned before December was as a result of more recent requests. She was more than happy to provide the chronology of the requests made by BDO from August onwards and the responses made by officers. The subsequent delay with the audit until the Autumn was because officers were waiting for BDO to recommence the audit due to factors outside the control of the Council, as was reported to the last meeting in October 2023.


To reassure Members moving forward the new Chief Accountant was addressing historical issues stretching back many years, and for which updated processes and controls were now in place. Whilst the Council was now by comparison in a stronger position, the Section 151 Officer recognised that until the audit of the accounts was agreed the Council would not have the external assurances that were needed, albeit she was confident that the Council was moving in the right direction.


Despite the reassurances the Committee continued to have concerns about BDO and the delays in their progression of the audit, and to that end given the serious implications for the Council, Members needed to have in writing an audit trail/chronological order of events otherwise they would be failing in their responsibilities to scrutinise the process. BDO stated that they had already presented various reports to the Committee at previous meetings outlining the progress or lack of with the audit.


The Chair echoed Members concerns and frustrations. Personally, she had little faith that the 2019/20 Statement of Accounts would be agreed and signed off by the date set by BDO of 31 August 2024, and therefore she sought assurances from BDO, including more detailed milestones to keep the audit on track. Steve Blandon reiterated the new audit timetable set out in the supplementary report which he felt went as far and detailed as could be expected at this time. Despite Members concerns and misgivings Mr Blandon felt that given all the circumstances, in his professional opinion, he had provided the best indication as to when the audit would be completed.  He was however more than willing to regularly meet with the Chair and the Section 151 Officer to keep them updated with progress.


Members asked that bearing in mind BDO had already stated that B&D was not their only client, and that sometimes other work took priority, should the 31 August deadline not be met, would the Council be in its rights to deduct an element from the additional fee that BDO were seeking. BDO responded that would not be possible as the scale of fees was set by the Public Sector Audit Appointments Ltd (PSAA) who also agreed any additional fees based on work completed.


The Chair made the point that in due course when BDO presented their additional fee for the 2019/20 audit of accounts, she would insist that in the first instance it was presented to the Committee. In that respect Members enquired as to whether it would be possible to insist that it include performance related clauses should target dates not be met. The Independent Adviser (IA) to the Committee stated that this would not be possible as the Council was not party to the fee contract which was between the PSAA and the audit contractor.


BDO agreed to let the Section 151 Officer have urgently an analysis of the costs of the additional fee that they would be claiming for the extra work associated with the 2019/20 audit.  For the record BDO stated that any additional work forming part of the handover arrangements between the incoming and outgoing audit partner would be regarded as duplication and would not be passed on to the Council.


Clarification was sought as to what was the current position regarding the complaint submitted by the Section 151 Officer to BDO in September 2023 stating that the delay in completing the 2019/20 Statement of Accounts was unacceptable. BDO did subsequently meet with the Section 151 Officer to discuss the complaint, whereupon they set out the timelines to receive responses to queries, with a view to agreeing revised dates to complete the audit. That said they agreed to provide the Council with a formal written response to the complaint, a necessary step before the Council considered whether it intended to escalate the complaint to the PSAA.


On a separate matter the IA asked that if as a result of the new audit partner review of the accounts there were further queries that could not be resolved in a timely fashion, what was their Plan B.  BDO responded that their intention would be to resolve such issues within the revised timeframe presented which allowed for the Council to respond to queries and provide additional information by the end of April. This would then allow for a further period into the Summer to reconsider any new information that may arise with a view to finalising the audit by the August 2024 deadline.


The Section 151 Officer stated for the record that as of now there were no further material issues or information awaited from officers, all related enquiries having been responded to quickly, and that this was now solely about the new partner review, which she believed a further six months period to conclude was excessive. The majority of the audit had been completed, reviewed and signed off with some residual matters relating to PPE and infrastructure assets still to be confirmed. That said if the audit was not agreed and signed off by the backstop date then the Council would not get a full audit opinion but would still be obliged to pay both the standard scale fee as well as the additional fees, which given the length of time since the fees were agreed by the former Section 151 Officer, could not realistically be challenged. 


BDO responded similarly for the record they had in recent months highlighted a number of material errors in the accounts, the most recent being in December 2023, and which had contributed to the delays that were now being reported on and discussed. They also clarified that when the Section 151 Officer stated that the majority of the audit has been completed, this needed to be put in context, as concluding the accounts did not mean the work was complete, as the accounts would then be subject to a series of technical and other reviews, and these had to be completed before they were ready for agreement and sign-off. The Section 151 Officer repeated her comments that as far as she was aware there was nothing materially outstanding at this point in time.


The viewed expressed by the Section 151 Officer that in all likelihood the 2018/19 additional fee was likely beyond challenge, was very disappointing. Members, felt from the tone of the debate that there appeared very little legally that the Committee could do to challenge BDO in relation to both the fees and timescales for the delivery of the audit. That being the case the expectation was that moving forward the Section 151 Officer should seek to robustly challenge the amount of any additional fees for extra work conducted by BDO on the 2019/20 Accounts, given how long they had been working on them and having regard to the state of the Council’s finances at this time. There was also an issue about the reputation of the Council should the accounts get caught up with the backstop arrangements.


The IA explained that the impact of the backstop arrangements was that by a given date auditors should in normal circumstances reach a conclusion and certificate completion of audits, and where that was not possible, then to issue an unqualified opinion and/or a disclaimer. That clearly has potential reputation implications for both audit firms and local authorities. However, given the scale of the backlog nationally and how many councils would likely be affected, this should mitigate the reputational damage to Barking & Dagenham.


On the matter of challenging fees, the IA supported the view that given the former Section 151 Officer had sanctioned the additional fee payment for the 2018/19 audit, it would be very unlikely that PSAA would permit any further representation. As regards the additional fee for the 2019/20 audit, as yet to be provided by BDO, the IA commented that should Members decide to contest, it could conceivably carry more weight if the Committee made representations, albeit the authority to approve the additional fee ultimately sat with the Section 151 Officer. 


Turning to the complaints process, whilst noting that BDO had already given a commitment to respond in writing to the Section 151 Officer’s complaint about the delay in completing the 2019/20 Statement of Accounts, and depending on the response, the Committee might choose to formally put in writing its own concerns. The IA also noted that one of the report recommendations included a proposal to make representations to the responsible Minister to seek their invention. Whilst he was not aware of any powers that the Minister had to intervene in a determination by PSAA, as a matter of principle there would be nothing to stop the Council writing to raise awareness of the challenges of delivery in the wider audit market.


There then followed a series of discussions back and forth between Members and BDO without resolution around timelines, including shortening the 31 August deadline, the allocation of additional audit resources, the BDO complaints process, details of which will be shared with the Section 151 Officer, the chronology around the 2019/20 audit, the details of which would be confirmed between officers and BDO, and subsequently shared with Members, and the formal process to challenge the additional audit fee for the 2019/20 audit. 


The Chair asked BDO to present a report to the March 2024 meeting setting out in detail the broad timelines presented this evening, including what had been achieved by that date, together with any further queries that might be raised and the officer responses to such. This was requested essentially to provide Members with an understanding and a level of confidence that the deadline of 31 August 2024 to complete the audit and, which BDO was not prepared to bring forward, was on track. She also expected a written response from BDO within the next two weeks to the complaint submitted by the Section 151 Officer last September, who in turn for the record would copy her complaint to Members. Finally progress and further actions required would be discussed offline between the Chair and Section 151 Officer to which Members would be kept informed.


The Committee noted the report.











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