To consider the report.

The Panel considered the External Audit Report 2016/17. Darren Gilbert of KPMG explained that the report set out summary outcomes of the process for both the council and the Pension Fund.  He thanked the borough’s Finance team for their support in the process.

The report began by setting out areas of significant audit risk; those that were considered particularly complex or inherently at risk of material mistakes. The report included two main risks: changes in the pension liability and the valuation of the longevity hedge fund. Work on both areas had given KPMG assurances that were needed therefore it had been concluded that there were no issues. There was a small quantified item detailed later in relation to the longevity hedge, a technical aspect relating to £6m. In the context of the size of the fund this was considered small and not material. In relation to the valuation of hard to price investments, particular attention had been paid. Again, all assurances needed had been given.

Councillor Rankin arrived at 7.13pm.

Members noted that CIPFA had introduced changes to the code as detailed on page 10 of the report. Pages 11-12 of the report detailed a number of subjective areas on which judgements had been made. Given the indicative figures, KPMG was happy with the process and that the numbers were within the anticipated range. Mr Gilbert highlighted that KPMG had challenged the method and assumptions used by the actuary in determining the pension liability. The figures for inflation and the discount factor were at the outer edge of what would be expected but counterbalanced each other.

One misstatement of valuation had been identified in relation to the value of an investment property, which had been loaded to the fixed asset register but only as a draft. This had now been rectified.

In relation to the responsibility to ensure the council was securing value for money, the audit had looked in particular at the governance processes around the Transformation programme. KPMG had been content with how this had been put together.

Councillor Smith commented that he felt the presentation was clearer than the previous format.  Mr Gilbert explained that CIPFA had previously required a standardised way to categorise and describe  income and expenditure. Local authorities were now however able to report on a structural basis to mirror the internal process. This had been allowed to provide consistency with the information provided to Members. The EFA statement was a new addition to bridge between the two methods.

Councillor E. Wilson commented that not many public bodies consistently achieved an unqualified audit; this highlighted the excellent work of the Finance team and across the organisation.

In relation to demographic data supplied to the pension fund, Mr Gilbert confirmed that the audit was required to look at the risk, but this did not mean it was an issue.

Councillor da Costa raised a number of questions in relation to the Pension Fund statement. Councillor Saunders commented that no other council that was a member of the Pension Fund would perform such a review at their Audit and Performance Review Panel. This was a consequence of the fact that the borough was the administering authority for the fund. He felt it was more appropriate for the review to be undertaken by the Pension Fund Panel. The Head of Finance confirmed that the Pension Fund Panel would consider it as part of the Annual Report later in the year.

Mr Gilbert explained that the borough’s statement and that of the Pension Fund were published as one audit report as the council published one set of financial statements. KPMG had spent a lot of time looking at the longevity hedge and had taken advantage of an actuarial specialist and also liaised with the actuary. Councillor Saunders commented that there was a clear distinction between the diligence and scrutiny the Panel could apply to the council’s audit compared to the pension fund audit. The relevant specialist officers were not present to answer detailed questions on the pension fund. Councillor Da Costa commented that in retrospect it would have been useful for specialist officers to be present.

Mr Gilbert confirmed that the outcome of an unqualified audit was consistent with previous years.

Councillor Da Costa asked whether the overall valuation put into the council’s accounts as a proportion of liabilities was appropriate?  Mr Gilbert responded that the audit looked at pension liabilities that were the responsibility of the council. More time than would normally have been expected was taken to challenge some of the assumptions made by the actuary. The net impact was that the range was within what would be expected. The audit had regard to the risk management processes of the council and what was included in the risk register. KPMG was concerned with risks related to the audit opinion whereas the council may have other types of risk such as operational, legal and reputational, but these would not be considered by the audit. Local electors had the right to approach the auditor and submit an objection to a particular area; none were received this year. The council’s risk register would be more detailed than the issues considered by the audit. Value for money calculations were more about the concept of significance. Some issues in the council’s risk register would be too small or too detailed. The audit did not say the council was delivering value for money but that adequate arrangements were in place to deliver value for money.

Councillor Da Costa asked if the audit considered key decisions and whether risks were expressed adequately to Members when making decisions. Mr Gilbert responded that the audit did not seek to do so comprehensively but if it identified a theme or risk area detailed work would be undertaken. The key driver would be the decision making process. The work on Transformation made specific references to governance arrangements.

RESOLVED UNANIMOUSLY: That the report be noted.