Agenda and minutes

To receive any declarations of interest.

The minutes of the Corporate Affairs meeting held on 15 October 2020 were submitted and approved as a correct record.

1)     Middlesbrough Council

2)     Teesside Pension Fund

The provisional audit results report for Middlesbrough Council for 2019/2020 was presented.

The impact of the Covid-19 pandemic had caused significant additional work given the increase in the risk profile across all Local Authority audits. Key areas of the impact on risk assessment were in relation to property, plant and equipment, work around key judgements in respect of pensions and judgemental balances, and disclosures around going concern and whether their ought to be any material uncertainties around the financial position disclosed within Local Authority Financial Statements.

Subject to concluding outstanding matters listed in the submitted report, the External Auditor, Ernst Young, (EY) expected to issue an unqualified audit opinion on the financial statements. As previously advised, the value for money opinion would be modified in respect of the provision of Children's Services following the OFSTED inspection findings published in January 2020.

Section 4 of the submitted report identified the audit differences and they were also set out in the covering paper to the Financial Statements prepared by management. EY had confirmed their independence as required, together with other matters that had to be reported under auditing standards, in the appendices to the submitted report. EY were in discussion with management with a view to agreeing fees for 2019/2020 and any additional elements of impact in relation to 2019/2020 for the reasons outlined.

The auditor commented that there continued to be good working relationships between auditors and Council Officers and all had worked well to navigate through the challenges of the Financial Statement preparation process and the audit process, with a focus on quality as well as the wellbeing of the finance and audit teams. The auditor thanked the finance team for the support provided to EY in allowing them to make good progress in the discharge of their responsibilities.

Key aspects in terms of the findings were highlighted as follows:

●    Risk of fraud in revenue and expenditure recognition.

Testing had not identified any misstatements arising from fraud in revenue and expenditure, or other matters relating to this risk to bring to the Committee's attention.

●    Valuation of land and buildings.

It was previously reported in the Audit Plan Addendum that the Council's valuation this year was provided on the basis of material valuation uncertainty and the accounts disclosed that fact. The audit focussed on the Council's three main commercial assets: the two Centre Square buildings and the Tees Advanced Manufacturing Park (TAMP), since they were most likely to be impacted by the Covid-19 pandemic. EY's property experts agreed with the Council's valuation and noted that the valuations in the accounts were towards the bottom end of what was expected, but within a reasonable range. The Centre Square assets were recognised in-year as a finance lease, and came onto the balance sheet during the year with matching entries to the liabilities and were re-valued at the year-end. In the original draft accounts there was an impairment on those assets and Officers were now working through an updated lease calculation. This would not  ...  view the full minutes text for item 20/32

The purpose of the report was to present the audited accounts for Middlesbrough Council for 2019/2020. Members' approval would be subject to satisfactory completion of a number of outstanding items in EY's results report and any changes that might occur consequent to that.

The draft Statement of Accounts (SOA) 2019/2020 had previously been considered by the Committee at a meeting held on 30 July 2020 and a training session had also been provided for Members on 5 November 2020 to ensure that Members were equipped to take a judgement on the Accounts.

The Committee's attention was drawn to five main accounting issues, four of which had been amended in the update accounts and one that had not, due to its relatively small size and the amount of work that would be needed to restate. The amendments were as follows:

●     Pensions Liabilities

The overstatement of assets on the Pension Fund meant there was a direct correlation of that to the size of the net Pensions Liability in the Accounts and also in the other Tees Valley Local Authorities' Accounts. All the Councils were making changes for the overstatement of assets on the Pensions Fund.

●     Finance Lease Liability

The amount that should have been recognised in the Accounts had been recalculated at £12.374m, a difference of £8.460m from the draft Statements in July 2020. The value of the lease liability in the Accounts would be revisited annually to ensure it is assessed each financial year in line with the standard approach. The Accounts had been updated with the revised amount and the net liabilities recorded on the Council's Balance Sheet had improved due to this audit adjustment.

●     School Bank Accounts

●     Interest Accruals

Minor errors had been identified which were resolved through adjustments in the Balance Sheet between creditors and cash and borrowing.

 ●         Lease Surrender Costs

It was proposed that the Accounts were not adjusted for this transaction given that it was only 7% of the Council's materiality threshold.

A number of disclosures issues were also highlighted. More explicit information was included in relation to Going Concern, due to the risk presented by Covid-19 to local income streams. An additional and comprehensive disclosure had been included in Note 1 on accounting policies to satisfy this requirement. Enhanced disclosures in relation to the Centre Square liabilities had also been included.

Although the Pension Fund Accounts were subject to a separate audit from the Council's accounts, they were included within Middlesbrough's Statement of Accounts due to its role as the administering authority. A number of disclosures had also been given greater focus due to Covid-19, including the impact of material valuation uncertainty on the Fund, the Going Concern basis for the preparation of the financial statements, and a post balance sheet event note to indicate that the losses on the Fund experienced in February and March 2020 were mainly recovered in the first quarter of 2020/2021.

Members raised the following queries:

●     Officers' Remuneration

The Chief Finance Officer agreed to undertaken an analysis of savings on  ...  view the full minutes text for item 20/33

The Director of Finance presented the Letters of Representation 2019/2020 for Middlesbrough Council and Teesside Pension Fund.

The Letters were technical documents required by External Audit from the Council setting out a formal record of the representations made by the management of the Council to confirm certain matters or to support other audit evidence as part of the preparation of the financial statements.

AGREED that Letters of Representation 2019/2020 for Middlesbrough Council and Teesside Pension Fund were received and noted.

The Chair asked Members to give consideration to approval of the Audited Statement of Accounts 2019/2020.

AGREED that Middlesbrough Council's Audited Statement of Accounts 2019/2020 was approved.

Boho X

As requested by the Corporate Affairs and Audit Committee, the Ad Hoc Scrutiny Panel had undertaken a review of Elected Members' role in decision-making in relation to Boho X, at a meeting held on 23 November 2020.

The Chair of Corporate Affairs and Audit Committee had attended the Ad Hoc Scrutiny Panel meeting and was concerned with regard to the process outlined in relation to the awarding of £20 million funding, that was allocated to the Boho X project from the Tees Valley Combined Authority (TVCA).

The Chair suggested that it would be appropriate to clarify with the Overview and Scrutiny Board of the TVCA as to the governance process for the allocation of funding.

AGREED that the Chair would write to the Chair of the TVCA Overview and Scrutiny Board and request clarification regarding the allocation of funding.