Agenda item

To receive the draft Auditor’s Annual Report on the 2024/25 external audit.

Members received a presentation from Debbie Hanson of Ernst Young (EY), the Councils’ external auditors.

Members asked the following questions:

·       Councillor Booth asked for clarification with regards to the timescales associated with the delays in the working papers being provided. Debbie Hanson explained that generally there is a three-day response time to audit queries which is agreed with the Finance Team and the delay would have been beyond that agreed timescale. She added that she does have detailed records which are held on the portal which is shared with the Council and that is where the requests are logged along with a due date and that is then monitored when information is received. Debbie Hanson stated that the audit results report, that will come forward to the committee in the new year once the audit has been concluded, will include some more information on that. She explained that some of the areas were outstanding longer than others and where she has highlighted the audit on leases it was decided that the work on that subject was not going to be competed because the working papers were not complete. Debbie Hanson stated that she can provide the committee with more statistics and data if they would find that to be helpful. Councillor Booth stated that in the past he has made criticism against Ernst Young about them failing to meet deadlines with regards to audits having not taken place, however, it now appears that the criticism lies with the Council because we have not provided the requested information. He made the point that he is aware that there are instances when certain data is requested it is not freely available and it has to be obtained from the management information suite in order to try and obtain the information and quite often that delay can be caused by just creating the queries in order to get the information. Councillor Booth questioned whether there is more that can be done to be proactive by giving more advanced guidance with regards to what is going to be required and he would anticipate that the information which is being requested is extra to what has been provided already. Debbie Hanson stated that an audit has not been undertaken for two years and there have also been changes within the Council’s Finance Team and officers were undertaking new roles and responsibilities which meant that a learning process was also being undertaken for both the Council’s Finance Team and members of the EY team. She expressed the view that this year was more about learning and getting to know each other and next year there should be a better understanding in advance of exactly what audit evidence is required for the individual areas as well as undertaking a split visit so that the information requests can be sent out earlier. Debbie Hanson explained that there have definitely been improvements this year and she expressed the opinion that it was always going to be a challenging year, with regards to going through an audit for the first time and with there being some changes to the processes of EY as well. She added that the team have been very accommodating and have tried to provide the information and there has been no resistance with regards to submitting the information and, in her view, it has been the challenges with regards to the size of the Finance Team, other competing priorities and the fact that some staff are new to the process as well.

·       Councillor Christy referred to page 15 concerning the progress of full assurance and he added that he appreciates that it is a situation which a number of local authorities find themselves in but given the current audit status of the Council and the comments that have been made in the report he would like to know whether Debbie Hanson has a view as to when the Council will be realigned in order to be able to adhere to the National Audit Office implementation guidance or is it her opinion that it will take longer to get full assurance? Debbie Hanson expressed the view it will be a longer journey because unfortunately it just means that the 24/25 audit is actually in effect in the 23/24 position in terms of the level of assurance and because there are those gaps in opening balances and comparators it does mean that the Council is one year behind. She explained that the local audit reset is very much focused on a risk assessment approach to being able to move to an unqualified opinion and as a result the challenge is that there are two years where there are no assurance higher risk than if there is only got one disclaimer year and then there are the challenges with regards to Local Government Reorganization (LGR), but the timeframes for that may mean that it is not actually possible for EY to get to an unqualified opinion before LGR impacts and all of those complexities make the position more challenging.

·        Councillor Mrs French referred to page 23 and stated that at a previous meeting the committee turned down the proposal to have the addition of an independent person to form part of the committee, and she questioned whether that it something which is going to be reconsidered. Deborah Moss stated that she agrees with the view of EY, which is why she brought the report forward to the committee in December 2024, and she added that she would be happy to bring the report back to committee at the next meeting should it be something that they wish to reconsider.

·        Councillor Booth asked Debbie Hanson whether there is any impact to the Council as it does not have an independent person on the committee at the current time? He added as the Council does not have a person in that role, will EY require more assurance in governance or is it just something that they believe should be done as best practice to get the best out of what this committee is undertaking. Debbie Hanson explained that it does not have any direct impact on the work of the External Auditors, but it is recommended as good practice by CIPFA. She has seen it at most of the other councils that she works with and the experience that she has is that those Independent members bring an external view and specific expertise in relevant areas. Debbie Hanson added that it proves to be valuable and adds extra challenge to the audit committee, both to EY and also to the Council’s own officers in terms of bringing that experience and, in her opinion, they are valuable members of an audit committee.

·        Councillor Miss French asked members of the committee whether they would be content to see a report come back to the next committee and it was unanimously agreed. Deborah Moss advised members that it is likely to become a legislative requirement and, in her opinion, it would be prudent to consider appointing an independent person sooner rather than later as the recruitment process could take some time to find a suitable person.

·       Councillor Benney referred to page 25 which refers to a significant risk concerning untimely publication of financial statements as well as a balance carried forward where the figures are missing and he asked officers when that information will become available so that the balances are correct and signed off so that the accounts can be completed and the Council can then get back on track. He made the point that he is aware that EY had resourcing issues preciously and, in his view, the Council has struggled to get realigned since then and he would like the Section 151 Officer, Peter Catchpole, to provide a response to the committee in due course.

·       Councillor Benney added that he does have further questions for officers to respond to, including the fact that the Council has not reached the target of savings that were forecast and the reserves appear to be down to a very near minimal level. He questioned whether the Council is in a good place as the accounts have not been completed or signed off and there are many questions which need answering by Peter Catchpole.

·       Councillor Benney added that it appears that the £5 million which was borrowed has been paid back and he made the point that members do not know whether the Council will need to undertake any further borrowing this year. He expressed the view that incomplete accounts can lead to poor decision making and, in his opinion, he believes that there are some concerns and red flags in the information which need highlighting to officers and for the committee to receive a response from the Section 151 Officer.

·       Councillor Booth referred to the medium-term financial plan and stated that it has been highlighted that the Council will not necessarily meet the savings and he asked how much work has been undertaken when looking at the projections, particularly around the Future 2 programme and what is contained in it against where savings need to be made. He asked Debbie Hanson whether there has been an assessment undertaken to ascertain whether the Council is likely to be on track event though the targets are not being met and what type of assurance for that area can she give as there is only a couple of years shown and they do appear to be quite small to fill that £4 million pound gap? Debbie Hanson stated that, with regards to how much work EY have undertaken regarding the savings and the backward-looking ones with regards to what was achieved last year, it is relatively straight forward and the committee have noted that it was only 50% delivered. She explained that for the current year she has undertaken checks to ensure that there are plans in place to underpin those savings and has undertaken checks to look at how they are being monitored and reported on, which has given the higher percentage of 89% this year at the current forecast. Debbie Hanson added that she has undertaken checks to ensure whether the Council have arrangements in place to identify, manage and monitor the delivery of the savings and has been given comfort and assurance that they are being monitored and the projections do look as though they are improving. She added that she does agree with the point which has been made with regards to the levels of savings being relatively small in terms of them being £500,000 and the cumulative gap which is £4 million and, in her view, the Council needs to do other things in order to increase those levels of savings or income generation to bridge those gaps in future years. Debbie Hanson referred to the report and explained that the Council does have a budget equalisation reserve which is in place to help manage the budget and when possible, the Council has been putting money into the reserve, with this course of action being a mechanism to help set a balanced budget and manage it but a reserve can only be used once and when it has been used to support the budget then there needs to be alternative for the subsequent year to either reduce the level of spend or increase income. She made the point that Fenland is in a very similar position to many other local authorities with regards to the cost pressures which are impacting the Council with regards to pay and inflation and that is something which is having an impact on all councils. Debbie Hanson explained that the figures she has reviewed for Fenland are not as large as she has seen in some places when considering the level of future budget gaps and the reserve position is being managed at the current time, adding that underlying pressures will remain and then LGR will have an impact. She made the point that it will be the balances that will be of most interest as LGR occurs and that will include what are the usable reserve balances and what are the Council’s cash balances, and it is those elements which are the critical things. Debbie Hanson explained that the difficulty in terms of getting assurance when there are two disclaimed years is actually how that gap of assurance is filled in terms of what the usable reserves are in relation to the two years where an audit did not take place. She made the point that, due to that fact, the question arises as how to build up that assurance that there is material mis statement in those usable reserve balances.

·       Councillor Booth stated that it would be useful for the committee to have a presentation from officers as to how that gap is going to be covered and what plans are in place.

·       Councillor Benney stated that he agrees and added that the auditor’s report is already 9 months out of date already and he added that there is missing information which he knows Peter Catchpole would be able to provide members with the answers that they require. He expressed the view that it appears to him that there is a lack of reserves and he questioned whether the Council will need to borrow further in the next year on a short-term basis. Councillor Benney stated that the savings the Council has do not appear to be significant and in the report it also states that the Council lost £362,000 on an investment and, in his opinion, the Council does need to be provided with an explanation as to where the Council is sitting with regards to its financial status.

Members AGREED to note the report.