Agenda item

To consider the Audit Results Report (ISA260) from the Council's appointed independent external auditor - EY (Ernst and Young).

Members considered the Audit Results Report (ISA260) presented by Neil Harris from Ernst & Young (EY), the Council’s External Auditor.  Neil introduced the Committee to Amalia Valdez Herrera who is Flo Barrett’s Senior Auditor, both of whom were instrumental in the audit.  He was pleased to report the external audit testing has now been concluded.  This is the first year of a new statutory timetable for accounts, with draft accounts needing to be prepared by 31 May and approval of the accounts by 31 July, putting increased pressure on all concerned.  The Council responded extremely well to the challenge and as a result Neil was pleased to confirm the Council’s financial statements represent a true and fair view of the Council’s finances as at 31 March 2018.  He concluded the Council has secured proper arrangements for economy, efficiency and effectiveness in the use of its resources, which is EY’s value for money conclusion.  The results reflect very well on the Council and its secure financial position.  

It was further noted that the Expenditure Funding Analysis, Whole of Government Accounts and IAS19 Procedures had been concluded since the time of the draft report.  However, there were two significant amendments made to the financial statements, one being an adjustment to the valuation of the Council’s leisure centres as all-weather pitches at two leisure centres had been erroneously included in the original valuation the Council obtained. The required changes have been reflected in the accounts for approval at this meeting.  The second adjustment made was to the Pension Liability valuation.  This is not specific to Fenland but happening across a number of county pension funds across the country.  EY are seeing a difference in fund valuation between the schedule of results included in the draft accounts and the valuation of the fund as included in the County Council Pension Fund accounts as at 31 March.   A rerun of the IAS19 was requested which had been responded to very quickly in order to provide an updated estimate at 31 March.   In conclusion there were no significant findings or deficiencies in terms of control.  Neil suggested that more information could be provided on analytics at a future committee as EY are investing heavily in technology to drive more efficient and effective audit.

Members asked questions, made comments and received responses as follows:

·         Councillor Booth asked if there would be any impact on the leisure centres tender process in respect of the revaluation. Mark Saunders advised that the tender process was about management and not the value of the asset. 

·         Councillor Sutton expressed concern that the pension deficit is now £66m having been told a year ago there was a deficit of £36m.  Peter Carpenter explained they are the most regulated audited part of the accounts, with actuaries taking about seven years to be trained and accredited; also looking at the adjustments, counties and districts will be more in line next year so this will not happen.  In terms of the valuation of a pension fund, there are two parts to it.  All pension funds up to 2014, apart from two, are currently in deficit.  There are long term recovery plans to break even across the country.  Therefore the valuation changes yearly, but the main valuations take place every three years.  The next one will be in 2019, when the rate will be set for the next three years in terms of payments, lump sums and contributions; we are currently paying about 17.5% as a contribution of pay plus a lump sum of £800,000 a year.  However, this shows how pension funds fluctuate.  Also, people are living longer and pension funds, are generally made up of 70-80% equities and 20% hedge against equities, and equities have increased massively in the last year.  The pension fund itself has gone up another 2.5% from April to June but could go down just as easily, so the skill of the pension fund professional is to ensure they keep hold of those gains. 

·         Councillor Clark asked, in terms of value for money, given what is occurring at the County Council with the FACT payments can the Council be sure that the amount of money it gives to FACT is spent correctly.  Neil advised that the audit includes testing income received and checking that grant conditions are met and he has no concerns with this council.  Councillor Clark asked could we be satisfied then that the £50,000 we give to FACT is used correctly.  Neil advised that from EY’s point of view they could be satisfied that the revenue and expenditure was recognised appropriately in the Council’s accounts as expenditure.  It was a matter for the County Council’s auditors to form a view on whether County Council’s money is used appropriately.  At this point, Councillor Butcher declared an interest as he is a FACT board member and advised the £50,000 grant pays for free bus fares.  Councillor Booth stated this payment was capped a few years ago but wanted to be sure that, given this amount is near the materiality threshold, there have been no other payments to FACT that this committee needs to be aware of.  Carol Pilson addressed Councillor Clark’s concerns and confirmed that the matter with FACT had been followed closely because of the Council’s interactions with FACT.  A member of FACT with a bus pass could use their bus pass for free on these routes, the fare being paid 50% by us and 50% by the County Council.  She stated we are currently reviewing the PKF report which is going to the audit committee at County Council next week, from which we will see if there are any implications for FDC.  A briefing can be provided to Councillor Clark once that analysis has been completed.  Councillor Booth reiterated that we need reassurance that we have not had any figures mispresented so that we are paying out money that we should not be paying.  Carol Pilson stated we can take some assurance that FACT also go through their own external audit processes; they submit quarterly facts and figures and we have a service manager who assesses this information to see whether there are any issues to raise or notable discrepancies.  Councillor Booth asked if EY are happy that our procedures are robust enough to pick up any discrepancies and Neil confirmed that he had no concerns. 

·         Peter Carpenter asked what EY’s view was on the other councils they manage.  Neil stated that most councils will hit the target of end July but due to the complexity of some valuations or resource issues causing pressure, they have had to prioritise appropriately to ensure that as many clients are concluded before end July where it is within their control to do so. 

·         Councillor Sutton asked how EY could assure the committee that nothing is missed.  Neil explained that EY undertakes a risk assessment of each client to ensure appropriate phasing of prioritisation, and additional quality review control procedures are put in place for some of their bigger clients.  In the context of Fenland, both Flo and Amalia do not just work on this audit, but have other engagements so there are a number of experienced audit managers behind the scenes providing coaching and support where appropriate. Flo advised that Mark Saunder’s team were very good in helping identify areas that could be brought forward for early testing which has allowed more time and resources to focus on risk areas, thus ensuring we are still getting a high quality audit in the short amount of time we have left due to the deadlines.

·         Councillor Sutton asked if the competence of the finance team had helped with the audit.  Both Neil and Flo confirmed that the quality of the finance team had helped the audit run smoothly and thanked Mark Saunders and his team for doing a fantastic job and for all the help they had given this year. 

·         Councillors Sutton and Clark asked Peter Carpenter how confident was he in the processes and the work done before his interim appointment.  Peter explained that, having been satisfied his appointment was not as a result of financial irregularities, he felt comfortable having looked at the accounts, MTFS, monitoring and the view of the auditors.    

·         Councillor Booth mentioned that the BBC had reported all four of the big audit firms needed to “up their game” and asked if EY had made any changes to their approach.  Neil stated that for the last few years EY have had an audit quality investment programme responding to regulator feedback.  The regulator has commented positively about EY’s culture.  Quality remains the highest priority for the firm and they are putting a lot of work into building trust in the corporate and public sector. 

·         Councillor Clark asked if it was correct that EY’s fees are reducing next year.  Neil confirmed this was the case.  A scale of fees is set that affect the outcome of contract tendering so, having been appointed as the Council’s auditors for the next five years, part of that contract award is a reduction in the scale.  This does not mean a reduction on the amount of work undertaken or the quality of it.  However, it may lead to further debate if work arises that represents a change in scope agreed. 

·         Councillor Booth asked why the grant income was stated as being £36m but the figures added together only come to £31m.  Neil explained that it was the way of describing key items and Flo confirmed that the remaining £5.6m is made up of a lot of small grants.

The Corporate Governance Committee agreed to note the contents of the Audit Results report. 

Councillor Booth declared a non-pecuniary interest insofar as investments are held with building societies by virtue of being employed with Yorkshire Building Society.