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Councillor Harris, declared a non-pecuniary interest (in respect of being a Member of Essex County Council) declared a non-pecuniary interest in the following item pursuant to the provisions of Meetings General Procedure Rule 7 (5).
Steve Heath, Finance Manager, introduced the Annual Statement of Accounts report. The report requests that the Committee accept the audit results report for the year ending 31 March 2017, notes the comments in the covering report and approves the letter of representation and the audited statement of accounts.
Kevin Suter, Ernst and Young, presented the report to the Committee, which outlined the results of the audit of the 2016/17 statement of accounts. Kevin Suter reminded members that the original plan was brought to the Committee in March, which included the possible risks, and this report provides the key conclusions from the audit. The two responsibilities of the auditors are to provide an opinion on the statement of accounts, as well as to draw a conclusion on the arrangements for value for money.
With regard to the findings from the statement of accounts, Kevin Suter stated that at the time of the report there had been limited areas of testing that were still outstanding, however these have now been completed, and the intention is for the Statement of Accounts to be signed at the end of the meeting. Kevin Suter provided the Committee with a summary of the report including information about the fraud and revenue recognition, and confirmed that there were no issues to draw to attention. Kevin Suter also confirmed that no issues were found in the risk of management override. With regard to the presentation of the financial statements, no material misstatements were identified, but there was a requirement to restate certain figures. This was corrected using the new Expenditure and Funding Analysis note.
Kevin Suter informed the Committee that the valuation techniques used were reasonable and within the appropriate benchmarks. With regard to Pensions valuation, Kevin Suter highlighted that the assumptions used by the pension fund actuary were considered to be at the optimistic end of the range for the discount rate and RPI inflation.
Kevin Suter confirmed that the auditors would be intending to apply an unqualified opinion on the financial statements. Kevin Suter also commented on a finding within the report regarding the change of payroll systems and the issue of document retention for the purpose of the audit.
The Committee welcomed the report from the auditors. The Committee raised a number of questions regarding the pension fund estimations. Kevin Suter confirmed that this comment would be reflected in reports to other local authorities in Essex. Kevin Suter confirmed that there are no non-standard issues with regard to the Pension Fund and that the estimation was deemed to be towards the top of an acceptable range, which means that it is materially correct. The process under which a valuation is devised would be managed by Essex County Council who would be audited and the actuary would also need to adhere to standards.
In response to a further question about the level of risk associated to the pension fund deficit, Kevin Suter stated that the Statement of Accounts provides a material reflection of the liabilities of the risks to the Council. Funding of the Pension Fund is undertaken on a tri-annual basis, with contribution rates agreed and built in to the budget setting process. Kevin Suter confirmed to Committee members that there are controls in place to assess the funding and duration of liabilities and that the risk to the Council is appropriately managed, particularly given the lifetime of the funding. The Chairman of the Committee suggested that further information about the Pension Fund could be brought to the Committee in future.
Kevin Suter also confirmed, in response to a query, that the Council and the auditors have a good dialogue to ensure that the recommendations are dealt with in a timely manner. Kevin Suter thanked Colchester Borough Council Officers for their assistance in this process.
With regard to the Council's arrangements for value for money, Kevin Suter confirmed that the Council's key plans were appropriately supported and reported an unqualified conclusion for the arrangements to implement value for money. Two risks were identified, the first of which was the savings required over the medium term, however based on the Council's record it was deemed that there are adequate arrangements for this. The second risk is related to the governance and accounting arrangements for the establishment of the Essex Garden Communities project. Kevin Suter confirmed that the actions taken so far are soundly based, and recommendations from the peer review have been responded to positively and in a timely manner. Kevin Suter informed the Committee that given the early stages of the project this would be something that the auditors would keep an eye on. The Committee Chairman, suggested that this may be an item the Governance and Audit Committee wish to look at in future.
Following further queries regarding Garden Communities, Kevin Suter explained that whilst there is not a similarly sized comparative body to take best practice from, in relation to the Governance, there is a lot of experience on how Councils have undertaken commercial style projects or significant decisions that could be used. Kevin Suter also confirmed that the Council has taken advice on the structure of the company and therefore from an audit perspective, happy with the arrangements in place. Kevin Suter also confirmed that the same risk and findings was also included within Braintree District Council and Tendring District Council audit reports.
A member of the Committee questioned whether the auditors were confident that the Council could continue to identify efficiencies to reduce the budget gap. Kevin Suter stated that it is harder to find efficiencies over a longer time, however the arrangements in place are soundly based. The pressure on budgets and budget gaps is seen across other authorities in Essex.
Kevin Suter brought to the attention of the Committee that the auditors remain independent of the Council. In addition, Kevin Suter also highlighted the small increase in fee, which has been agreed with the finance team. This is in relation to the payroll migration issues and additional work on the statement of accounts.
RESOLVED that;
- Audit results report for the year ending 31 March 2017 be accepted
- The comments in the covering report be noted
- The letter of representation be approved
- Audited statement of accounts be approved.