Agenda item

The purpose of this report is for members to review and approve the final Audit Results Report Year Ended 31 March 2025.

Members received a presentation from Debbie Hanson and Jake Day of Ernst & Young (EY), the Council’s external auditors.

Members asked the following questions.

·       Councillor Mrs French stated that she does have concerns with regards to the property and the equipment point that was raised and, in her opinion, due to Local Government Reorganisation (LGR), it is essential that records are brought up to date as soon as possible in order that records are accurate and quantify what the Council owns. Debbie Hanson explained that with regards to PPE they have not identified any issues in terms of concerns about the completeness or accuracy of the Council’s records with regards to fixed assets in relation to those which are valued on an annual basis. She added that the Council does hold some categories of assets at historic cost which is in line with the CIPFA code and the only reason why there is no assurance for those is because there has been no testing of additions and disposals of those assets in the two years where disclaimed opinions were issued. Debbie Hanson explained that the asset under construction is quite a specific point and in general there were no issues identified with either the valuation, the existence or the rights and obligations and ownership of the assets.

·       Councillor John Clark stated that there appears to be several areas of concern contained within the report and he asked for an indication as to where the Council would sit if a benchmarking exercise was undertaken with the other authorities that EY engage with. He questioned whether, in their opinion, they would place the Council on a good, intermediate or needs improvement position in order to give him some reassurance in terms of where EY see the Council positioned and where they are likely to find themselves moving forward. Debbie Hanson explained that the areas of main concern which have been highlighted are contained within the table that she referred to which dictate the assessment of the procedures to support the audit. She added that it has been noted that capacity is the key issue and the colour coding in the executive summary on Page 11 demonstrates that there are a number of red and amber areas. Debbie Hanson made the point that the Council should be looking towards achieving a status where the whole of the table is coloured green. She added that when comparing the Council to other authorities that she works with there are some where the table is all green and she made the point that there are a few issues to be addressed which, in her opinion, is always difficult for relatively small councils due to the fact that the Council has lots of other priorities such as budget setting and LGR is going to increase the workload of the Council significantly. Debbie Hanson expressed the opinion that many small councils do need to look at the capacity of the Finance Team and the support that they receive from other areas of the Council because it is that team who pull together the accounts, but that information is required from many other areas and departments of the Council. She expressed the view that it is very important that members consider whether the Finance Team has the support that they need in order to prepare the accounts as well as undertaking all of the other tasks that they need to do which will include LGR. Debbie Hanson made the point that she has worked very hard with the Finance Team and believes that they have a very constructive relationship, but she does believe that there have been challenges in terms of the capacity and the volume of information that is required in order to complete an audit and the time that it takes to pull all of that information together.

·       Councillor Clark asked Peter Catchpole to explain what steps are being taken to address the concerns raised by EY in order that the Council can find itself in a better position in twelve months’ time? Peter Catchpole explained that he has had a couple of conversations with the Auditors and, in his opinion, the onus is not all on the Council and it is about collaborative working. He added that ever since the Covid pandemic, with Auditors not coming on site, in his opinion, there are many different ways in which there could be improvements made going forward. Peter Catchpole expressed the view that he is content with the position of the Council at the current time particularly when considering the build back and the fact that there have not been full audits undertaken for a while. He added that the Chief Accountant also retired and he was in post for over 40 years and, therefore, different aspects of the finance operation are evolving and being undertaken in a very different way with different aspects of the tasks in finance being shared out amongst the team. Peter Catchpole expressed the view that he believes several of the points are to do with external providers in terms of valuers and pension information which is not down to the Council. He added that where the Council did not publish draft accounts on time was due to a deliberate decision taken by him due to the fact that there were not going to be audits undertaken historically because of the issues. Peter Catchpole expressed the opinion that he believes that the Council finds itself in a particularly good position and he is not overly concerned but added that there is room for improvement. He added that 24/25 has been much better and he stated that the lack of internal audit resources to hit deadlines is an issue but is unlikely to be so going forward. Peter Catchpole explained that the Council failed to publish the draft accounts on time and when they were published for the financial year 24/25 there were some errors but that was not unexpected. He added that he does not believe that there needs to be any added resource within the team as the workload is being spread amongst the existing team and Sian Warren, the new Chief Accountant, has managed that very well. Peter Catchpole stated that the Council now finds itself in a position where there are disclaimed opinions and he advised members of the committee that he is not unduly worried about the current status and added that work undertaken in 25/26 will give the Council more assurance with no matters causing him any concern.

·       Councillor Nawaz referred to the areas which are marked as ineffective or require improvement and asked whether those areas are carried forward to the following year or is there any consequence to the Council and he asked for an explanation to the term used in the report which was materiality? Debbie Hanson explained that with regards to the assessment and the arrangements to support the production and the audit of financial statements that is a single year assessment. She added that each year is assessed in isolation and is, therefore, not carried forward and the reason why that is provided is to give officers an understanding of where areas need to be improved but to also provide members, as those ultimately responsible for governance, with further information about the clarity of EY assessment. Debbie Hanson explained that it is something new which EY have introduced this year and this has not been previously reported in the same way and, in her opinion, it does provide a more granular assessment of the areas where improvements are needed. She added that as she had previously alluded to in her presentation, this is the first time that an audit has been undertaken in three years and there have been changes such as the retirement of the Chief Accountant partway through the year who had been in post for a long time and it was always thought that this year would be a difficult year. Debbie Hanson added that there will now be the expectation of seeing a number of those areas moving to be more effective next year. She stated that with regards to the questions concerning materiality, there is no audit of any financial statements whether that be corporate, or public sector that can ever provide 100% assurance on the material accuracy of the figures and the statements. Debbie Hanson explained that all Auditors calculate what they call a materiality level, so that they are providing assurance to the Council to state that the accounts are materially accurate and it is that materiality which indicates the quantum of the errors. She added that the Auditors are not giving 100% assurance on the accuracy of every figure, but they are stating that they are accurate to the materiality balance and that is what they audit to. Peter Catchpole added that his team do review the external audit report and reflect on the areas which are marked as ineffective and then ensure that those areas are enhanced going forward. He explained that the team are already working on an action plan for 25/26 and where both External Audit and Internal Audit indicate that there are areas where improvements can be made those are areas which are focussed on.

·       Councillor Clark stated that Peter Catchpole has stated that there will be no increase in staffing within his team, and asked whether the existing team has the capacity to deal with the extra workload which is going to be needed to reach the required level? Peter Catchpole stated that when he referred to capacity, he was referring to recruitment of additional officers but explained that existing officers are being developed internally and there are more accountants in post now than have been previously and they are working towards qualifications. He added that the workload is now being spread amongst a greater number of accountants which was not the case before and he stated that he is increasing the capacity but just not the headcount.

·       Councillor Benney added that the report makes reference to the fact that although the team is resourced there is still shortfall of 0.4 of a post. Peter Catchpole explained that this is a vacancy within the Internal Audit Team.

·       Councillor Benney expressed the view that work involved with Internal Audit and Accountancy is a vast job and EY always do the external audits and some of the problems appear to stem from the accounts not being signed off, with it being clarified that the accounts from 23/24 have been signed off.

·       Councillor Benney stated that he recalls that EY did have their own resourcing issues a number of years ago and the Council could not publish items on time due to the fact that external audits were not being undertaken. He expressed the view that a problem can arise when there is no closing balance from one year and it has an impact on the opening balance for the following year which has been highlighted in this report before the committee. Councillor Benney stated that the Council has new Internal Auditors and new officers and those members of staff will look at things in a different way to that of their predecessors. He added that those new officers will bring forward new ideas and undertake tasks in a different way from previous officers which he believes may have played a part in not having the final figures signed off and having new staff could be attributed to the points raised in the report. Councillor Benney expressed the view that the report reflects that there is room for improvement and the Council is doing a good job and is working its way towards improving its auditing standards. He added that due to various reasons there have been issues such as the pandemic, staff changes, under resourcing issues of EY in order to sign accounts off but, in his view, all the points are being addressed and from reading the report he does not believe that the Council is in a bad position. Debbie Hanson explained that she was not involved with the Council’s audit for 21/22 but she aware that the 21/22 audit was not signed off until February 2024 but she does not know the reason for the delay but recognises that it would have had an impact on the Council with regards to closing down subsequently or preparing subsequent years accounts. She made the point that she does believe it is correct to say that it was due to the EY resourcing shortages, but she agreed to ascertain what the delays were with regards to the 21/22 audit. Peter Catchpole stated that Debbie Hanson has advised that a timetable needs to be agreed for getting the final accounts signed off.

·       Peter Catchpole made the point that the committee has seen the draft Statement of Accounts and the final accounts will be circulated to the committee this week, with subsequent approval by email with delegation to the Chairman and Section 151 Officer to sign them off. Debbie Hanson stated that she agrees with that proposal, and she added that the committee is responsible for governance and one of the key roles of the committee is to approve the financial statements. She added that she would expect that the accounts would be considered at the same meeting as the audit results report in order to give members the opportunity to ask questions about the accounts and ensure that they are comfortable in approving the accounts. Debbie Hanson stated that it is important that EY obtain the confirmation from the committee that they have seen the accounts and they are happy with their approval and for delegation be given to the Section 151 Officer and the Chairman.

·       Councillor Mrs French stated that she noted in the report that it states the accounts will be ready by the 28 February for the sign off. Debbie Hanson stated that the 27 February is the statutory backstop date and it is envisaged they will be circulated before that date.

Members AGREED:

·       to note the content of the report, and

·       that delegation be given to the Chairman of Audit & Risk Management Committee and the Corporate Director and Chief Finance Officer to agree any further amendments to the Statement of Accounts which may arise prior to the final 'sign off' by the external auditors.