To note:

·       the publication of the draft accounts for 2022/23;

·       the update on the outstanding audits and audit plans for the financial years 2020/21, 2021/22 and 2022/23; and

·       the update on the progress on the objections to the accounts for the financial years 2020/21 and 2021/22.

The Committee considered the report notifying members that RBWM’s draft 2022/23 accounts were published on 30 June 2023. The report also provided an update on the on-going audit for the financial year 2020/21; the audit plan for the un-audited accounts for the financial year 2021/22 and 2022/23 by the Council’s external auditors, and the progress of objections to the 2020/21 and 2021/22 accounts by the Council’s external auditors.

The Chair opened the item by commenting that members of the Committee would recall that at the previous meeting they had signed off 2019/20 and therefore the accounts are already almost three years out.

Raman Singla, Chief Accountant did not have any additional information to add to the report within the agenda pack.

Councillor Sharpe asked what the highlights were of those accounts and what were the concerns in relation to the accounts. The Chief Accountant replied that the 2022/23 accounts were based on the information that was available at the time and he did not have any concerns on them as they were produced following evidence-based practice as per the CIFPA code of practice requirements.

Councillor Sharpe sought clarification on the level of reserves that the Council has at the moment and what level of reserves were expected for a Council as a percentage of its total assets. His understanding was that it was recommended by central government that Councils should not keep a huge amount of reserves in their accounts as it was tax payers money. Andrew Vallance, Head of Finance answered that the Council currently had £10m in the General Reserve. The minimum level of reserves required, based on the statement provided by the Section 151 Officer in the Section 25 report in February’s budget report was around £8m. He considered that between £12-£15m would be the optimum level and anything above that would be regarded as excessive. He asked the Committee to note that it would be reported to Cabinet that as of month 2 there was currently an overspend of over £4m. The Council would not want to raid their reserves, but it would provide some comfort for services areas such as adults and children’s which had demand led pressures. He stated that it was important to keep those contingency sums in the budget. There were no government guidelines on the level of reserves but he understood that there were political statements made in relation to levels of reserves. Previously District Auditors had advised that 5% of the net revenue budget was a suitable level and this equated to 100m of revenue budget so the starting point would be £5m. He reiterated that within the Section 25 report they had considered risk as part of the budget papers and indicated that an absolute minimum was £8m. Ideally the Council would increase its reserves to between £12 and £15m.

Councillor Bond advised that as he was a member of the Pension Fund he had tried to read that section of the accounts. He had been surprised at how difficult some of the information was, he considered you needed to be a specialist pension fund accountant to be able to understand and this reflected the Redmond Review that local authority accounts were too complicated. He stated that the note on the Pension Fund at page 114 on the Forward Currency Programme was out of date. He had tried to make sense of the Community Infrastructure Levy (CIL) and Section 106 monies. He noted that that there was a £11m reserve for CIL but there was no comparable reserve for Section 106, instead there was £9 million plus mentioned as developers’ contributions which was the collective name for CIL and Section 106. The accounts indicated that it was money that was not yet recognised as income as it may have to be returned to the person who made the contribution. He wondered whether a separate training session on this area would be useful as he had tried to look at other sources such as the citizen portal, the authority monitoring report and the budget but found different information which was compatible but did not reconcile. He asked that further explanation on this would be helpful at some stage.

He continued that as the administering authority of the pension fund he was aware that the other unitary authorities in the county could not sign off their accounts until RBWM signed off their own accounts. He understood the reasons why there was a delay on these but was concerned about how this was being communicated to the relevant council’s auditors, the S151 officers and the Councillors for those affected Councils.

The Head of Finance confirmed that full and frank debates were held each fortnight between the Berkshire 151 Officers with pension funds and progress with external audits being common topics. The other authorities were kept fully informed and they were provided with a form of certification on the Pension Fund accounts to support the process but sometimes these were not accepted by the auditors. He reflected that there were many discussions, information sharing between Councils and auditors and did recognise that it could be a source of tension but some of the Councils were further behind than RBWM.

Councillor Cross referred to the press announcement released the previous day relating to the financial challenges being faced by the Council and the potential forecast overspend of £5m. She queried what monitoring was taking place to get early warning signs of overspends so they could be mitigated.

The Head of Finance advised that it was primarily the role of Cabinet to monitor the budget, they receive formal quarterly monitoring reports throughout the year and also monthly updates were being provided at the Cabinet briefings to keep them informed. Corporate Overview and Scrutiny then scrutinise what cabinet is doing rather than the Audit and Governance Committee. The monthly reports were also considered by the senior management team.

Councillor Cross struggled to read some of the reports where the acronyms were not spelt out such as CfGS which was Centre for Governance and Scrutiny. She suggested that if only used once that such things were written out in full and that it was checked that the more frequently used were written out somewhere such as the LGA to help make the report more readable.

The Chair agreed that the glossary listed on page 166 of the report was for accountancy terms rather than acronyms and requested this was addressed. The Chief Accountant would check that the acronyms are referenced in full in the final version of the document.

Councillor Sharpe asked what the main risks and issues that were likely to occur from a finance perspective. In response the Head of Finance stated that the main risk was the Council’s ability to pay back debt at it had £230m in loans and as interest rates were so high the medium-term financial plan showed that this meant there would be £10m deducted from the revenue account next year e.g. 10% of the revenue budget to service the debt. When the Committee considered the budget later in the year the cash flows would be dependent on the sale of assets with some being more controversial than others. The pension fund was still not fully funded, at approximately 82%, which was another long-term strategic risk compared with other pension funds which were over 100% funded now. This resulted in deficit payments in the revenue account that other councils do not have now. He summarised the three biggest risks as interest rates, inflation and the pension fund.

Councillor Wilson explained he was familiar with private sector accounts but not public sector accounts. He had tried to find the operations result for the previous year and set out at page 27 there was an increase in the general fund of £1.5 million which basically comprised of the release of a contingency budget and then an £800k deficit on the service expenditure.

The Chair highlighted that on page 29 there was a small calculation error on the 2024/25 numbers within the medium-term financial strategy. He continued that on page 36 which was the comprehensive income and expenditure statement read alongside the balance sheet on page 38 there were two things: upwards re-evaluation of property plans and equipment of about £24m and the re-measurement of the defined benefit liability. His understanding of that there was a risk to the Council in terms of higher inflation and interest rates with increasing costs to service debts however from the pension funds perspective this was the other way around. Higher interest rates meant that the Council was discounting the very long liabilities at a longer amount and that had been a big change and inflation had gone up so with that combination meant there was a deficit with the reported number being lower at the moment, but it was hugely volatile.

The Head of Finance explained that the accounts were produced as of 31st of March triennial every year and were a snapshot at that time. The evaluation was done every three years on pensions. He stated that you have to look at pensions as a very long term thing with liabilities lasting more than 50 years and you could not have knee-jerk reactions to the volatile changes each year. This was why the pension committee was advised by the advisors and actuaries to provide that sort of information. This could lead to massive distortions in sets of annual accounts which was why government did not expect you to sort out funding your pension deficit in any one year because it would bankrupt everyone some years.

In response to the Chair’s question whether there was a list setting out which assets were not revalued and the method for revaluation the Chief Accountant confirmed detailed reports for each asset were available from the consultants.

The Chief Accountant would circulate a summary of the evaluation reports to the members of the Committee. 

The Chair referred the Committee to page 12 of the agenda pack. It was noted that the Council was one month behind when it needed to deliver the draft accounts but was a month earlier than the previous year. The Head of Finance confirmed the Chair’s point that the accounts were now published and open for public comments as stated on page 14. 

The Chair referred to page 84 which set out the external audit fees. He asked the Committee to note that the usual audit fees were listed as comparable to previous years, fees payable in respect of other services had increased slightly and then fees payable in respect of work on objections for the 2019/20 accounts was now at £90,000.

The Chair asked to discuss the progress of previous accounts. The Council now had three sets of draft accounts that had been published and needed to be audited. The Chair was keen to understand from Satinder Jas from Deloitte what the progress was, when would they likely to be done, what the Council needed to do and where they were with the public objections.

Satinder Jas from Deloitte explained that in terms of the 2020/21 accounts they did start the audit of the account soon after starting the 2019/20 audit. As the Committee is aware they identified significant issues in the 2019/20 audit which continued into the 2020/21 set of accounts. Having finished the 2019/20 set of accounts a final strong team had been put together with the aim of signing off the 2020/21 set of accounts by the end of September and be brought to the Committee then. It was explained that providing there were no significant issues coming from the accounts the aim was to complete the 2020/21 accounts by the end of September.

He continued that relating to the 2020/21 accounts they had been through a review of all the objections that had been raised and decided what they think it is appropriate to carry forward and take relevant advice both on both internally and legally. Once they had processed that information, management were advised and they then undertake further investigations. In 2019/20 there were six objections taken forward for further investigations. He continued that as long as there were no significant issues coming out of the objections, significant findings or significant investigations required then the team was hoping to close the objections at the same time as providing an opinion for the accounts.

The Chair raised concerns that the objections had been submitted some time ago and stated that progress reports would be requested at each meeting because he was worried. Jonathan Gooding, a partner from Deloitte, had emailed the Chair to advise that the objections have been reviewed and triage analysis had been completed. He asked was that only as far as the process had reached?

Satinder Jas replied that the triage analysis was the most important and detailed part of the work that they do to determine whether objections should be accepted as it would be a waste of public money to investigate but they needed to be sure they were not rejecting objections if there was a valid reason to take them forward. He appreciated that it had been a while since they had been submitted but this was due to having the correct resources in place to tirage them correctly.

Councillor Sharpe stated that the Council was spending a huge amount of time and obviously a huge amount of money on this process. He wanted to understand how much of taxpayers money was being spent on responding to the objections.

Satinder Jas confirmed the cost to respond to the objections relating to the 2019/20 budget was set out in the agenda report and was £90,000.

Councillor Cross echoed the comments made about the high cost of dealing with the objections.

In response to Councillor Cross’ query the Head of Finance clarified that the table at page 162 related to the Annual Governance Statement and not the accounts. He stated that none of the objections raised in 2019/20 were found to be valid therefore there were no outstanding actions required on any of the previous year’s objections. In relation to 2020/21 the team had not yet been notified of the outcome of the triage work referred to.

Councillor Wilson sought clarification on the quantity of objections and the process followed. Satinder Jas advised that objections were submitted by local electors directly to Deloitte and to the Head of Finance. The Head of Finance provides an initial response. Deloitte considers that response and the objection raised.

Councillor Wilson repeated his request on the number of objections to be resolved. Satinder Jas replied that he was unable to provide a cost estimate as it would depend on the number of objections that were taken forward but the number received were a similar amount to the previous year. However, the elector cannot raise the same objection every year so if it had previously been rejected or investigated this would not go forward. Similarly if the issue had been raised through Deloitte’s own audit process then the objection would not be taken forward for investigation.

In response to Councillor Wilson’s query regarding the impact of the management response on Deloitte’s approach to objections, Satinder Jas clarified that using existing guidelines (AGN04) and criteria they would assess the objection to determine whether it was in the public interest to take it forward.

The Chair summarised that he was hearing from his fellow councillors that there was not a high level of confidence within the Council Chamber. He said that although they had been around for some time the Committee did not even have a list of the objections in front of them. He understood the issues of confidentiality so queried why it was not possible to be provided with the number of objections received, the number that had triaged, the number that had been taken forward, when this had been done so they had a measure of the progress made. He reflected that it was a shame that Jonathan Gooding was unable to attend the meeting and requested a simple table in terms of each of the outstanding accounts in relation to the objections.

The Chair asked, given that the objections had just been triaged, how confident Deloitte were that the 2020/21 accounts would be ready to be signed off in September given that one of those months was when people were on annual leave.

Satinder Jas replied that he would have to enquire whether it was possible to provide the Committee with the figures as requested. He reiterated that as long as there were no significant issues in the remaining work they were relatively confident that they had the correct team in place and the correct number of resources to complete the work.

The Chair reiterated his request for a simple table for each of the accounts – what was the number of objections, when were they triaged, how many objections had been taken forward to be shared with the Panel within a month.

RESOLVED unanimously that:

i)             the publication of the draft accounts for 2022/23 be noted;

ii)            the update on the outstanding audits and audit plans for the financial years 2020/21, 2021/22 and 2022/23 be noted; and

iii)           the update on the progress on the objections to the accounts for the financial years 2020/21 and 2021/22 be noted.