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The Committee considered a report asking that it note the Council's uncertified draft
statement of accounts 2022/2023 which has now been published.
The Chair took the opportunity to remind the Committee of its Terms of Reference,
and in particular the responsibility of the Committee to consider and approve the
Council’s statement of accounts, and to review the Council’s external auditors annual
audit letter. The Committee was reminded of the difficulties which the Council had
experienced in obtaining audited accounts on time, or at all, for a number of years in
common with local authorities across the Country. The Chair attended meetings of
Audit Committee Chairs when these were held, and at the most recent meeting had
asked whether it was possible to appoint a local accountancy firm to carry out the
Council’s audit. Sadly, this was categorically not possible, as there were statutory
provisions for the auditing of accounts and a limited number of firms authorised to
undertake the audit of local authority accounts. It was suggested that it was intended
to complete the outstanding audit by September 2024, and the Committee was
reminded that the accounts which were before it were un-audited accounts. The
Chair was, however, certain that the information which had been presented to the
Committee, with the possible exception of minor typographical errors, was accurate,
and he saw no reason for concern. A Committee member had submitted extensive
queries in relation to the draft accounts ahead of the meeting, and responses to
these had been prepared by the Deputy S151 Officer. Both the questions and
answers had been shared with the Committee.
Chris Hartgrove, Deputy S151 Officer attended the meeting to present the report and
assist the Committee with its enquiries. The Committee heard that the draft
statement of accounts for 2022/2023 which was before it had been prepared in
compliance with the Charted Institute of Public Finance and Accountancy (CIPFA)’s
guidance, which related specifically to local authority accounting which was different
from the private sector in many respects. Appropriate technical advice had been
sought when necessary in relation to matters such as taxation, valuations, treasury
management and investment recognition and collection fund accounting. The
Committee was invited to note that the draft accounts had been published prior to
consideration by the Council’s external auditors, BDO. The role of the external
auditors was to review the draft accounts to determine whether they represented a
true and fair view of the Council’s financial position at that date. The role of the
auditor was to report to the Committee and provide it with a statement on the
accuracy of the draft accounts prepared by Officers. A statement by the auditor
would be presented to the Committee alongside a set of financial accounts,
amended if necessary, and the Committee would then be asked to adopt these.
Once adopted as the final set of accounts by the Council and the auditor was
satisfied that any concerns raised had been corrected within the bounds of
materiality, the auditor would sign the final accounts as a true and fair view. The
Committee was reminded that the auditor was working for it to provide assurance of
the accuracy of the accounts prepared by Officers. Local government accounting
was extremely complex, and therefore the auditors had the requirement to provide
technical and professional assurance that the appropriate rules had been correctly
applied. Any challenge to the draft accounts at this stage would only be followed by a
more rigorous and thorough review of their accuracy by the auditors, before a final
set of accounts was presented to the Committee after the audit process had been
completed. The Committee was advised that any detailed review of the draft
accounts at this stage added little value as any errors in the accounts would be
identified and reported to the Committee together with an amended set of accounts.
Recognising that this was the first stage of a very thorough process, the Committee
was simply asked to note the accounts.
Councillor Willetts was attending the meeting as a substitute, and requested that it
be specifically recorded in the minutes that as a substitute he had not been in receipt
of the questions which had been asked prior to the meeting, or the answers which
had been provided to the Committee, and therefore considered it unfair if the debate
was to be restricted to these questions. At the request of the Chair, the email
containing both the questions and the answers provided was emailed to Councillor
Willetts by the Democratic Services Officer during the meeting.
A Committee member acknowledged that he had posed a number questions before
the meeting, and that the Deputy S151 Officer had been very generous in replying,
however, he still had serious concerns about the accounts which had been
presented to the Committee. These were the only external control for the Council, as
the Council did not appear to have cash or borrowing restraints, and it was the
audited accounts which told the Council where the boundaries of its behaviour lay.
He was unable to reconcile the draft statement of accounts to the budgeting reports
which had been presented to the Committee at previous meetings. It was time for the
Council to decide whether it wished to simply accept the position with the delay in
providing audited accounts, or actively seek a resolution to the position. He was
very concerned about accepting the proposed disclaimed audit opinions, and
considered that the Committee needed to take this possibility very seriously indeed,
and take as much time as was required at the meeting to put forward a real plan to
deal with this issue.
The Deputy S151 Officer addressed the issue of a potentially disclaimed audit
opinion, and the Committee heard that in this context the external auditors were
awaiting specific professional guidance to enable them to issue a disclaimed opinion.
He had been advised by BDO that any such opinion would be risk based and would
completely comply with the auditing guidance they had been given. The Committee
was assured that the accounts could not therefore be signed off without any
assurance, albeit limited, being provided. With regard to the current status of the
audit, BDO had expressed a hope that the 2020/2021 accounts would be signed off
as quickly as possible; the audit work was substantially complete and the audit
partner had now returned to work following a planned career break and would be in a
position to complete the audit by carrying out a review of the audit work which had
been completed. BDO had stated that they intended to sign off the accounts by the
end of April, however, this was considered to be an ambitious target. With regard to
the 2021/2022 and 2022/2023 accounts, it was intended to proceed to gather the
necessary assurance to issue a disclaimed opinion in both instances, and planning
work in this regard had already commenced. Confirmation in writing of the timeline of
the planned works had been requested from BDO, and would be circulated to the
Committee once this had been received. It was not considered that the reason for
the delay in the audit could be attributed solely to the career break which had been
taken by the audit partner of BDO.
A Committee member noted that the item which was before the Committee was
simply the draft statement of accounts for 2022/2023, and the question to be
considered was whether or not these accounts should be noted. Although the idea of
a qualified audit opinion was very far from satisfactory, it was not felt that this was a
decision over which the Council had any control, and the government, in conjunction
with the Local Government Association (LGA), considered that the provision of
qualified accounts was the way to deal with the huge backlog of audits which existed
across the country. The Council did not have the advantage of operating in the
private sector where it was possible to change auditors at will.
Councillor King, Leader of the Council and Portfolio Holder for Strategy, attended the
meeting and, with the permission of the Chair, addressed the Committee. He
confirmed that both he and the Portfolio Holder for Resources took the support which
they offered to the Committee very seriously. He had attended meeting of the Audit
Committees of Essex County Council (ECC), and advised the Committee that the
frustrations with the audit process were the same across all those Committees. The
Council should seek to take advantage as much as possible from the arrangements
for completing the outstanding audits which would be set out by central government.
The Chair noted that the work programme of the Committee for the municipal year
2023/2024 was on agenda this evening, and suggest that the Committee may wish
to ensure that there was an item scheduled for its first meeting of the new municipal
year which provided an update on the audit process for all outstanding accounts at
that time. The detailed work which the Committee had undertaken over the
preceding municipal year was praised, and the input of some of the new members of
the Committee was singled out as having been particularly effective in scrutinising
the operation of the Council’s wholly owned companies. The Committee was
reminded that it was being asked to note the draft accounts which were before it, and
when the auditors had concluded their work and provided an audited set of accounts
to the Committee, it would be able to state whether, or not, it accepted the accounts
produced by the auditors were appropriate.
A Committee member did not wish to question any of the content of the draft
accounts, assuming that they had been prepared to a high professional standard.
However, before giving his vote to note the draft accounts, he sought clarification on
some issues. He noted that Councillors had been presented with reports containing
management accounts in the past, and when considering the draft accounts which
were now before the Committee the income and expenditure figures which were
contained in the draft accounts bore no resemblance to the management accounts
which had been provided to the Committee. This caused confusion that there were
different ways of expressing the Council’s gross income in different documents, why
did the figures in the draft statement of accounts not appear in the management
accounts? Although these draft accounts would now pre-date the dormancy of the
Council’s wholly owned companies, at some stage in the future the position of the
accounts would need to be considered both before and after dormancy, was it
possible from this set of draft accounts to clearly understand how the Council had
moved into the situation of dormancy? The Chair pointed out that that the Committee
had considered the Council’s wholly owned companies in some detail in recent
meetings, including their statements of account, and although there were potentially
issues relating to possible grant repayments, the Committee was reminded that the
matter before it at this meeting was the draft accounts which had been presented to
it.
The Deputy S151 Officer confirmed that the statutory accounts contained a vast
number of technical accounting adjustments which were required, and although the
management accounts were reconcilable to the statutory accounts, these were
presented in a very different format, and had been simplified to provide greater
transparency. In terms of the Council’s net position which impacted on its reserves, a
reconciliation would be provided to the Committee to provide assurance on this
point. There had been a gap between when the original outturn had been published
in September 2023 and the presentation of the draft accounts, and a reconciliation
would be provided in respect of this, although the Committee was assured that no
material changes would result from this. The Committee noted that the way in which
the quarterly outturn reports were presented to it was much more easily readable
and accessible than had been the case in the past, and the work of the Finance
team was praised in this regard.
A Committee member noted that the Council had to conform to the International
Financial Reporting Standards (IFRS), and suggested that to simplify the treatment
of the accounts, the Council’s management reporting should be aligned with these
statutory standards. It was suggested that the Council was only monitoring half of its
turnover, most of the reports which the Committee had considered showed turnover
at around £70m or £80m, but he believed that, in reality, turnover was closer to
£150m. It was necessary to demonstrate the Council’s actual turnover somewhere in
the management reports which were produced. He believed that it would be very
worthwhile to carry out a reconciliation now, and noted the difficulties with providing
the necessary resources for this. He considered that there was insufficient support
from the Administration for the Council’s Technical Finance Team. The Deputy S151
Officer acknowledged the suggestion of reporting on a statutory basis rather than a
management accounts basis, but advised the Committee that this would be an
extremely difficult task which would not ultimately enable greater understanding of
the Council’s accounts. It was considered that the management accounts made it
easier for the Committee to monitor the position of the budget through the year which
was their primary purpose. The additional value which would be provided by an in -
year reconciliation was recognised if it was carried out at the appropriate time in the
right level of detail. It may not be possible to carry out a reconciliation as a lot of the
information required was only obtained at year end, such as annual pension
adjustments. The Committee considered that the reports which were produced were
at a level which could be readily understood by the majority of Councillors, and not
just members of Cabinet or this Committee.
A Committee member maintained that it was essential that the management reports
showed the Council’s actual turnover, which had a very important legal meaning. In
terms of the reconciliation which had been requested, it was suggested to the
Committee that this would be an audit test which the Council’s external auditors
would require to be carried out, and this work would therefore have to be undertaken
in any event. Alarm was expressed about the passive stance which the Committee
had taken to the problem of obtaining audited accounts, and it was suggested that a
different approach was now needed. A position paper was requested dealing with
the key points of disagreement which had been expressed in relation to the draft
accounts which had been presented to the Committee which were major repairs,
depreciation and post balance sheet events to clarify the Council’s position as these
were matters which would be considered by auditors. It would also be useful to
prepare another, tidier, set of draft accounts prepared with input from the suggested
position papers, which reconciled with the monitoring reports. The Committee was
urged to take a 'carrot and stick' approach with the Council’s auditors, BDO. The fee
which the Council had paid to them of £39,000 was considered to be low to deal with
such complicated accounts, when in the past the Audit Commission had been paid
£200,000 for this work. The Council had appointed new auditors in KPMG, and it
was suggested that the possibility of this firm taking over the outstanding audit work
from BDO earlier than planned could be explored, as it was considered that BDO
would be in breach of the contract with the Council. The suggested approach was
therefore to offer the 'carrot' of an enhanced audit fee for completion of outstanding
works, with the 'stick' of another firm completing this work if BDO was unable to
complete it. The Council needed to be as pro-active as possible to ensure that audits
were completed. It was also necessary to explore the impact of disclaimed accounts
on the work which KPMG would be undertaking in the future, would this lead to
further qualified audit opinions?
Noting the suggestions which had been made, the Chair invited a specific motion to
be put to the Committee which clarified the recommendations which the Committee
was being asked to make to Cabinet.
The Leader of the Council addressed the Committee and cautioned against the use
of pejorative language when discussing the current position, as this did not reflect
fairly on the hard work of staff or the administration’s attitude to the situation. The
Council did have to make the best of the circumstances it found itself in, and take
steps to make a difference where it was able to. The Council was bound by
nationally negotiated arrangements, and an industry-wide way forward had been
proposed, which it was not possible to circumvent or overturn. It was difficult to see
how giving more money to an auditor which had failed to deliver audited accounts
could be justified. It was confirmed to the Committee that the administration would
not withhold resources from the Council’s Finance Team, who would be supported to
carry out the work which was needed to the quality required by the auditors.
Although the Committee accepted that the Council did not necessarily have the
power to directly influence the completion of the outstanding audit work, it was
suggested that the Council did everything within its power to drive completion of the
outstanding audit work forward as a matter of urgency.
It was very important to explore what disclaimed accounts would actually mean for
the Council. If the accounts were disclaimed, would there still be an inspection
period? Was it possible to try to narrow the scope of the disclaimer to keep it to as
narrow a scope as possible? Would it be possible for the Council to produce the
required Annual Governance Statement is the statement of accounts had been
disclaimed? What was the rarity and severity of an audit disclaimer?
The Deputy S151 Officer confirmed that KPMG had been appointed to be the
Council’s auditors for 2023/2024, and had already begun planning the audit for
2023/2024 with Officers. What the possibility of disclaimed opinions meant for their
audit was being considered, however, guidance was awaited and it was anticipated
that a method would be put in place for the 2 years following a disclaimed opinion to
gradually restore full assurance. A national framework with guidance would be put in
place to direct this work. With regard to inspection periods, the auditors did consider
that there would be an inspection period for the financial years 2021/2022,
2022/2023 and 2023/2024 for the Council’s published accounts prior to the proposed
September 30 backstop.
A motion was proposed to the Committee:
“The draft statement of accounts for 2022/2023 be noted, and that it be
recommended to Cabinet that:
- Position papers on key points of disagreement were prepared, which were;
major repairs, depreciation and post balance sheet events;
- A tidier set of draft accounts be produced which reconciled back to the
monitoring reports;
- The consequences of disclaimed accounts be investigated and planned for.”
In discussion, the Committee raised concerns about the second recommendation to
Cabinet, which could be considered to be disrespectful to Officers, and which did not
relate to the subject of the Officer’s report, which was to note the draft accounts for
2022/2023. Support was voiced for the preparation of position papers on the main
points of disagreement which had been raised. It was queried whether the Finance
Team had the necessary resources to meet the expectations inherent in the
proposed motion, however, the Committee did note the assurance which had been
made by the Leader of the Council at the meeting, that adequate resources would be
made available to the Team to meet its obligations. The Committee was concerned
to investigate the issue of whether accounts with a disclaimer would on some way
impede the Council’s new auditors in carrying out audits. It recognised the risk of
noting a set of accounts which turned out to not be acceptable to the new auditors
because of disclaimer issues, was it possible to narrow the terms of the disclaimer to
ensure that the accounts were of use to KPMG?
The Deputy S151 Officer supported the suggestion that the possibility of narrowing
the terms of the disclaimer be investigated. With regard to the debate in relation to
the preparation of position papers, the Committee was advised that a revision or re-preparation of the accounts together with a reconciliation would all form part of the
Council’s audit process, and so this would be a duplication of process when the
primary focus of the Finance Team at present was preparing the 2023/2024 financial
statements, and staff would have to be re-directed from this task to produce the
reports suggested. The Committee noted the duplication of work which the
suggested preparation of a tidier set of accounts would entail, and was content to
remove this suggestion from the tabled motion as it recognised that this work would
have to be carried out as part of the usual audit process. Consequently, the motion
before the Committee was amended to:
“The draft statement of accounts for 2022/2023 be noted, and that it be
recommended to Cabinet that:
- Position papers on key points of disagreement were prepared, which were;
major repairs, depreciation and post balance sheet events;
- The Cabinet investigate and plan for the consequences of disclaimed
accounts.”
Recognising the differences of opinion which had been expressed during the debate,
the Committee resolved to vote on the 2 suggested recommendations to Cabinet
separately.
When considering whether or not to note the statement of accounts, Councillor
Willetts called for a named vote in accordance with the Council’s General Meeting
Procedure Rules 9(3), and this request was supported by Councillor Sunnucks and
Councillor Naylor.
Those in favour of noting the accounts:
Councillor Smith
Councillor Jay
Councillor Harris
Councillor Pearson
Those against noting the accounts:
Councillor Sunnucks
Councillor Naylor
Councillor Willetts
RESOLVED that: the draft statement of accounts 2022/2023 be noted, prior to the
completion of the external audit process.
RECOMMENDED to Cabinet that: the consequences of disclaimed accounts be
investigated and planned for.