Agenda and minutes

The Chair welcomed all present to the meeting and read out the Building Evacuation Procedure.

To receive any declarations of interest.

The minutes of the Audit Committee meeting held on 3 October 2024 were submitted and approved as a correct record.

The external auditors from EY presented a report, the purpose of which was to provide the Audit Committee with a detailed completion report covering their approach and outcomes of the 2021/22 and 2022/23 audits.

The report indicated that, given that Statutory Instrument (2024) No. 907 “The Accounts and Audit (Amendment) Regulations 2024” (the SI) imposed a backstop date of 13 December 2024, by which date EY were required to issue their opinions on the financial statements, the auditors had considered whether the time constraints imposed by the backstop date meant that they could not complete all necessary procedures to obtain sufficient, appropriate audit evidence to support the opinion, and fulfil all the objectives of all relevant ISAs (UK). This decision was in line with ISA 200: Failure to Achieve an Objective 24.

If an objective in a relevant ISA (UK) could not be achieved, the auditor should have evaluated whether this prevented them from achieving their overall objectives and thereby required them, in accordance with the ISAs (UK), to modify their opinion or withdraw from the engagement (where withdrawal was possible under applicable law or regulation).  Failure to achieve an objective represented a significant matter requiring documentation in accordance with ISA (UK) 230 (Revised June 2016) (Ref: Para. A77 and A78).

It was highlighted to the Committee that, taking the above into account for the years ended 31 March 2022 and 31 March 2023, the auditors had determined that they could not meet the objectives of the ISAs (UK) and therefore anticipated issuing disclaimed audit reports.

Details regarding the legislation, guidance, codes of practice and other professional requirements taken into account whilst completing the audit work were outlined to the Committee.  Members’ and officers’ attention was drawn to the Public Sector Audit Appointment Limited’s Statement of Responsibilities (paragraphs 26-28), which set out what was expected of audited bodies in preparing their financial statements.

As the Audit Committee was the Authority’s body charged with governance, it had an essential role in ensuring that it had assurance over both the quality of the draft financial statements prepared by management, and the Council’s wider arrangements to support the delivery of a timely and efficient audit.

EY’s auditors considered and reported on the adequacy of the Council’s external financial reporting arrangements, and the effectiveness of the Audit Committee in fulfilling its role in those arrangements, as part of their assessment of value for money arrangements.  They also considered the use of other statutory reporting powers to draw attention to weaknesses in those arrangements, where they considered it necessary to do so.

The report was intended solely for the information and use of the Audit Committee and management and was not intended to be, and should not have been, used by anyone other than these specified parties.

The report was divided into the following sections: 1 - Executive Summary; 2 - Work Plan; 3 - Results and Findings; 4 - Value for Money; and 5 - Appendices.

During the presentation, matters regarding the following, as  ...  view the full minutes text for item 24/40

**Owing to overlap in the reports for agenda items 6 and 7, the Committee agreed to consider those items simultaneously.**

The Auditor from EY noted several points, which included the following:

·        It was anticipated that the signed accounts would be received tomorrow, 6 December 2024.

·        The Teesside Pension Fund did not have up-to-date information for all its Members, though non-compliance was not always the fault of the Fund’s administrators.  For example, Members could have changed address and failed to notify of this.

·        The investment in the local start-up bank of £26.5m in 2021/22 showed a reduction value of £30m in the 2022/23 accounts.  This reflected a value overstatement made in 2021/22.

·        There was a red rating around control values.

·        Reference was made to 2021/22 classifications; pool investment vehicles and associated risk was highlighted.

·        Commercial assets were more difficult to value.

·        Reference was made to dividends, in-year movement and market forces in relation to figure derivation.

·        Reference was made to disclosures; geographical location of investments and how these were held.  Mention was made of underlying investments and associated share prices.

The Head of Finance and Investment referred to page 27-29 of the agenda pack and the red ratings.  It was indicated that the Audit Committee would receive progress reports accordingly.  Reference was made to value for money and the costs associated with undertaking audit work.  A Member queried whether a recharge amount, noted on page 35 of the agenda pack, had been received.  In response, it was explained that this would be pursued as recharges were made as required.

A Member referred to the investment made in the local start-up bank and queried the value of the investment versus the amount of money invested.  In response, the Head of Pensions, Governance and Investments explained that exact financial data was considered exempt information, however, the bank had shown profitability for the first month last month, which was a positive sign.  The valuation was made on a book basis, which considered assets, liabilities and the difference, though it was felt it would be worth more due to its potential.  More investors were expected shortly, which would provide a better indication of value based on price.  The bank had a business plan in place and progress was being tracked against it.  It was anticipated that within the next three-to-four years, a profit will have been made.

NOTED

As per Minute Number 24/41.

**Owing to similarities in the reports for agenda items 8 and 9, the Committee agreed to consider those items simultaneously.**

The Head of Finance and Investment noted several points, which included the following:

·        As part of the process for closing audits down, management views/ Letters of Representation needed to be provided to the external auditors.

·        Various matters had to be considered as part of submitting views/ representations, which included: the accuracy of records, including ensuring that all liabilities had been disclosed; professional standards and the work of specialists, such as considering the auditors’ work and their compliance with codes of practice; ensuring that all information had been passed to auditors; the appropriateness of the systems in place for dealing with matters such as fraud, risk and misstatements; and the availability of all information.

·        Audit opinions were still being worked on; minor tweaks to the draft Teesside Pension Fund letters accompanying the agenda pack may have been required.  It was indicated that, at the point of finalisation, the Chair of the Audit Committee and the Director of Finance would provide signatures and the representations forwarded to EY.

A Member referred to the issues experienced in audit years 2021/22 and 2022/23 and queried the current position in terms of the 2023/24 audit.  In response, the Committee heard that work was taking place with Forvis Mazars as the new auditors in terms of preparing for the 2023/24 audit.  The next backstop date, in respect of the 2023/24 audit, was 28 February 2025.

NOTED

As per Minute Number 24/43.

The Head of Finance and Investment presented a report, the purpose of which was to seek approval from the Committee for the Statement of Accounts for the Council for the 2021/22 and 2022/23 financial years, prior to the statutory date of 13 December 2024, following external audit. 

Members were also asked to note the disclaimed audit opinions given by EY on those two sets of financial statements for Middlesbrough, as well as the work of EY in relation to the value for money commentary and the completion of the audit of the Teesside Pension Fund accounts for those two years.  In particular, the audit opinion on the pension fund accounts for both years was unqualified, and the accounts provided a true and fair view of the financial position.

The latest versions of the audited Statement of Accounts for the financial years 2021/22 and 2022/23 were attached at Appendices 1 and 2 of the submitted report.

Subject to the Committee’s approval, details regarding the next steps in terms of the sign off process were outlined.

AGREED that:

1.      The Statement of Accounts for the financial years 2021/22 and 2022/23 set out at Appendices 1 and 2, taking into the external auditor’s report on the audit process and management representations on the financial statements presented, were approved.

2.      It was noted that this was the end of the accounting and financial processes for these two financial years and these accounts were now closed.  The latest open audit would now be on the 2023/24 accounts for the Council; progress on this audit had already been discussed with Members.  The back stop date for this audit was 28 February 2025.

A copy of the current work programme for the Audit Committee had been circulated for information.  This was a live document that was updated after each meeting.

NOTED

None.