To note the audited signed accounts for the financial year 2020/21, approve the audited Statement of Accounts and approve the management responses to the matters raised in the External Auditors’ report.

Andrew Vallance, Deputy Director of Finance, outlined the report with the Committee being asked to approve the audited statement of accounts for 2020/21. The accounts were originally published in June 2021 which was within the required timescales. However, delays in the 2019/20 audit which had been caused by objections meant that these accounts were not signed off until March 2023 and had a knock-on effect on the 2020/21 accounts. Some significant changes were made to the 2020/21 accounts. The account presentation had been amended since the draft accounts were published, as some discrepancies had been discovered. There had been significant changes to property valuations particularly the impact of indexation of valuation movements. A national issue was identified on valuing infrastructure assets, specifically roads, which caused delays. A couple of items still needed to be completed including a review of indexation arising from the audit and final internal reviews by the external auditors.

Raman Singla, Chief Accountant, felt that a lot of lessons had been learned from the 2020/21 audit and steps had been taken to improve the process for future years. One code would be used for one item in the accounts, checks made to ensure that transactions were reported and training had been provided for staff on the new reporting arrangements. It was hoped that improvements to the process would lead to a better set of accounts for 2021/22 and 2022/23.

Jonathan Gooding, Deloitte, took the Committee through the accounts in detail. The audit highlighted the areas of focus on audit risk areas, with the audit being substantially complete. A number of issues had been identified including the quality of original financial statements, availability of information and reviewing the 22 objections which had been received but were not accepted. Final procedures outstanding on the accounts were around finalising and quality reviews. In 2019/20, there had been three areas identified as weaknesses in relation to value for money. On financial planning, there had been significant improvements and a number of arrangements had been implemented, therefore this was not considered to be a significant risk in 2020/21. The other two areas related to preparation of the financial statements and governance arrangements. Financial reporting was still regarded as a weakness and a recommendation had been made by Deloitte. Some actions arising from governance arrangements from various reviews which had taken place had not been implemented by March 2021, although it was noted that progress had been made in subsequent years.

Jonathan Gooding continued that a number of material and immaterial adjustments had been identified, some of which remained unadjusted. A number of control weaknesses were also identified, with some being significant. On significant audit risks, the valuation of property assets was deemed significant as a small change in assumption could have a big impact on the value of the property on the balance. Tests had been carried out on the design and implementation of controls by property specialists, an overstatement of £7.2 million had been noted. Another significant audit risk was capital expenditure and was potentially an area of fraud risk. Some immaterial errors had been noted. Management override of controls had some control weaknesses.

Benjamin Sheriff, Deloitte, discussed some of the control weaknesses. The council’s revenues and benefits system was different from the main finance system. The revenues and benefits system was unable to run retrospective reports on what the balance would be at a previous point in time. Council tax rates could be analysed but this was not possible for national non-domestic rates balances. On the pension fund audit, there was a pension liability of £333 million. There was an immaterial error in this area due to a difference of opinion between Deloitte and RBWM. The impact of the pandemic was considered on the valuation of assets and liabilities along with the Covid-19 grant programme and the administration of these grants. A disposal had occurred which had not been accounted for. Infrastructure assets was a sector wide issue in 2019/20 and there had been guidance issued on how to address this, an immaterial unadjusted misstatement was made. Money held on behalf of organisations like the Local Enterprise Partnership was different in 2021 compared to previous years but this had no net impact. Benjamin Sheriff highlighted the error schedule and the judgements applied around debt provisioning. Appeals provision amounts had been set after taking advice from a specialist firm but the out turn had been better than had been provided in the accounts. The net value was about £3.3 million.

David McConnell, Deloitte, gave the Committee some context to the pension fund audit and this was largely complete. A material adjustment had been made to the accounts of £48 million, this was regarding funds which were included at a stale price. The materiality of the pension fund was considered to be 1% of the net assets and for this year this was £24 million, all adjustments were reported above £1.2 million. Management override of controls had highlighted some control deficiencies around the preparation of financial statements. Longevity hedges were a significant risk where it was noted that the value had been updated by £2 million but there were not the control issues which had been flagged in previous years. Deloitte felt that there was no control in place to facilitate an update to any changes to figures as the accounting process continued. The draft accounts were presented at a stale price for a number of funds. Changes had been implemented since 2021, a control had been added in this area from 2022 onwards. On the draft accounts, an appropriate CIPFA checklist should be included and that the control process was understood and communicated to all those involved. It was noted by Deloitte that some journal entries were between the council’s own accounts and the pension fund accounts although nothing was missing. It was best practise to separate the two entirely. On IAS19, there was an upload of information sent to the actuary to facilitate the IAS19 reports being given to the other participants of the pension fund but there was no appropriate review control in place to check the detail. Deloitte noted that this had been addressed and a control was now in place. There was an incident of a journal being posted where there had been a limit breach but evidence was shown that authority had been given in a different way. It was recommended that journals should only be posted within the limits of the officer’s post. Bank and custodian mandates were out of date and this could be linked to changes in staff in the council and pension fund. The high number of observations made by Deloitte highlighted governance weaknesses, robust governance structures were recommended. There was only one uncorrected misstatement which was £5 million on the estimate of liability in the Goodwin case. There was a difference of opinion on this but it was reported to the Committee. David McConnell concluded by thanking Damien Pantling, Head of the Pension Fund, for his work and that it was pleasing to see the improvements that had been made.

Councillor Cross commented on the national non-domestic rates which she inferred to be business rates. She asked that as data had not been tracked did the council not know what the creditors and debtors were at this stage. Councillor Cross asked what the expected loss to the council was and whether any debt could be recovered.

Benjamin Sheriff explained that it was due to the system used by revenues and benefits. In March 2021, the two different systems would have been aligned and would show exactly how much was owed to the council and by who. After this date, the balances became different and no longer matched. The position in March 2021 was no longer accessible and Deloitte were therefore unable to test the validity at that point in time.

Elizabeth Griffiths, Executive Director of Resources, explained that the audit was about retrospectively proving a position. The extra detail on the balances had been requested by Deloitte to test but this could not be provided on the current system. This would be addressed for future audits.

Councillor Cross noted that the council had not uploaded the Annual Governance Statement to the website at the same time as the draft accounts. She asked how the public could be expected to scrutinise the accounts if the Annual Governance Statement had not been published.

Elizabeth Griffiths said that a lot of improvements had been made, the Annual Governance Statement had been produced but had not been published with the accounts.

Councillor Wilson drew attention to the audit fee issue, that Deloitte had requested £381,000 for completion of the audit and an additional £71,000 for the objections. Including the pension fund, this totalled around half a million. Councillor Wilson asked how this could be eliminated going forward.

Elizabeth Griffiths agreed that it was a significant amount of money and that there had been a number of discussions with Deloitte. It was not a new issue as additional fees had been paid for the previous year’s audit. A lack of financial information was a big reason but the team currently in place had improved this so that it would not be an issue in future years. There had been resourcing issues in both the council and Deloitte and audit delays had an impact on both teams.

Jonathan Gooding added that there were a number of reasons for the fee and the additional work that had been required by Deloitte. When an audit continued for a sustained period of time there could be inefficiencies. A third party body set the rate for audit hours and Deloitte awaited the result of their review.

Councillor Wilson said ideally the cost would be lowered as much as possible, he asked how far off the council was in ensuring a smooth process in future with minimal inefficiencies.

The Chair continued that the fee seemed to have come out of the blue and asked if going forward the council would be aware of the expectations on overrun audit fees in future.

Elizabeth Griffiths said that it was important to understand which costs would reoccur and the level of reporting now required by local authorities meant that there was a higher fee charged by external auditors. The finance team was under resourced which saved money in the short term but meant that long term fees were higher, there was a difficulty of recruiting financially skilled posts.

Jonathan Gooding said that the council would have a different auditor for the 2024 audit and a different audit fee would be set. The fees for the 2022 and the 2023 audits had not yet been finalised particularly with the delays to audits across the local government sector. Some of the costs could be reduced with investment and improvements in controls.

Councillor Cross asked if contracts that the council had entered into would be published in the accounts to improve transparency.

Elizabeth Griffiths confirmed that contracts were published on the website to show transparency. Commercially sensitive details would not be publicly available.

Councillor Wilson noted that it was a challenging year for the council but a lot of Covid grants had been received and it seemed the deficit had been saved as a result. It had been forecast in these accounts that the council would have financial challenges currently and this was without the extreme rise of inflation and interest rates. Councillor Wilson said that there were a number of references to significant control weaknesses and it was good to hear that things were improving.

The Chair commented that there were a number of control weaknesses which were ongoing, he asked if there were any overall comments on the progress being made to address these.

Elizabeth Griffiths said that there had been good progress made on the pension fund. The audit was backwards looking and issues were being addressed. Large scale change was taking place and it was expected that visibility, control and efficiency would be improved.

Andrew Vallance added that the 21/22 accounts would still have issues due to initially being prepared by the old team. For 22/23, the new team had prepared the full accounts so there would be a steady stream of improvement.

Councillor Bond asked if Deloitte knew whether objections had been received for the following two years of audits. He asked if a resident could speak at the Committee meeting to ask questions on the accounts rather than lodging a formal objection.

Jonathan Gooding said that the objection process was important, there was a difference between 19/20 and 20/21, in 19/20 six objections had been accepted for investigation but in 20/21 none of the objections were accepted. For 21/22, correspondence had been received in the appropriate timeframe and these would be reviewed. No correspondence had been received for 22/23. The public had a right to object to the accounts and could ask the external auditors questions through a separate process.

Mark Beeley, Principal Democratic Services Officer – Overview and Scrutiny, clarified that residents could register to speak on the accounts at a Committee meeting. However, it should be noted that residents were able to raise points and questions for the Committee to consider and not cross examine officers or the external auditors. Formal objections or questions on the accounts should be raised through the official process.

Councillor Sharpe asked what the cost to the council was of objections being investigated.

Jonathan Gooding said that the additional hours worked and the legal advice was included in the report, this was £71,000 for Deloitte.

AGREED UNANIMOUSLY: That the Audit and Governance Committee noted the report and:

i)             Delegated responsibility to the Executive Director of Resources to agree a final version of the Letter of Representation and sign it.

ii)            Approved the audited Statement of Accounts and authorised the Chairman and the Executive Director of Resources to sign them.

iii)           Approved the management responses to the matters raised in the External Auditors’ report.