Agenda item

A report of the Director of Finance (Section 151 Officer) was presented for information in relation to the draft Statement of Accounts (SOA) for the 2022/2023 financial year.

Officers were due to meet with External Auditors to discuss the implications of the Government’s proposals, announced in July 2023, in relation to the need to re-set the national local government audit market to address the significant delays in completing the audit of prior year accounts.   Further information would be shared with the Committee when the position was clarified by the Department for Levelling Up Housing and Communities (DLUHC).

Presentation of the draft SOA for 2022/2023 had been delayed due to the ongoing audit of 2021/2022, which included a specific review of the methodology for calculating the Collection Fund bad debt provision for compliance with IAS37.  The S151 Officer requested the External Auditor to undertake this work considering the material adjustments that were anticipated to result from the review, whilst other work on the 2021/2022 audit had been suspended by the External Auditor pending resolution of the approach to be taken to conclude legacy audits as part of the national reset of the local government audit market.

The cumulative delay to completing the audit of the Council’s legacy accounts was also due to a much longer audit process on the previous two years audits (2019/2020 and 2020/2021) as reported to the Committee in October 2023.  This was due to additional regulatory and value for money work being undertaken by the auditor.

Any potential audit adjustment because of the review of the Collection Fund Bad debt provision in the 2021/2022 accounts would impact on the opening balances of 2022/2023, therefore the S151 officer was unable to sign and publish the 2022/2023 accounts as presenting a true and fair view until this work was concluded.

Despite this delay (the statutory date for publishing these accounts was 31 May 2023), it was still an important aspect of the governance and approval process for Members to consider the financial details of the Council at the draft stage and prior to the external audit process being undertaken.  Members of the Audit Committee had received bespoke training on the Statement of Accounts prior to the meeting.

A copy of the draft Statement of Accounts (SOA) 2022/2023 was attached at Appendix A to the submitted report.  The Statement of Accounts consisted of a Narrative Report from the Director of Finance that provided an explanation on the financial position of the Council and described the key activities/highlights for the Council during the year.   The report also contained performance-based information that showed what had been achieved using public funds during the financial year.  The second section includes the Council’s financial statements.  These were the core elements of the SOA and included the movement in reserves statement, the income and expenditure statement, the balance sheet, and the cash flow statement for 2022-23.  The third section was the notes to the accounts, and these include detailed narrative explanation and figures that supported the key totals within the financial statements and other issues that were of interest to local authority stakeholders.  The Accounts also included the collection fund, covering council tax and business rates activities, the accounts of the Teesside Pension Fund for which Middlesbrough Council was the administering authority, and a set of group accounts (financial statements and notes) which consolidated the wholly owned subsidiary, Middlesbrough Development Company, into the Council’s own accounts.  The final section was the Annual Governance Statement that set out how the Council had complied with best practice governance arrangements and any key issues that arose from that.

It was drawn to Member’s attention that there were significant differences between the Council’s financial statements, which were part of the SOA document, and its management accounts which were reported for budget and operational purposes. This related to technical accounting adjustments and timing issues in how certain totals were reported. Two important areas to note were the presentation of reserves and the net worth of the Council’s balance sheet.

The total value of usable reserves in the Balance Sheet as of 31st March 2023 was £59.826m.  This was much higher than the £14.829m total that had been reported in the budget monitoring process for 2023/24 and was leading to the Council having difficulties currently in setting a balanced budget for 2024/25.  The reason for the higher total figure included capital and revenue grants unapplied (those amounts paid over in past financial years but to be expended on committed items), as well any other committed revenue reserves, such as schools reserves and the better care fund from the NHS. These were not available to finance the current year revenue budget position.

The net worth of the Council’s balance sheet at the 31 March 2023 was £345.0m, an increase in year of £252.7m.   It was highlighted that this increase predominantly related to retirement benefits under IAS 19 and a change in the discount rate applied to the liabilities that form part of the local government pension scheme. Further information on this was given in note 39 to the draft Statement of Accounts, but it was highlighted that again this increase was not available to the Council for revenue budget purposes as it would influence future pensions payments over the next 20-40 years.

In response to a request from a Member, it was confirmed that minutes from the Middlesbrough Development Company’s Board Meetings could be made available.

Members asked about the timescale for recovery of debts and it was acknowledged that, particularly for Council tax, some were low in value and the Council needed to be more proactive in writing them off.

In relation to Trust Funds it was confirmed that they did not provide any income to the Council.  Trust Funds were separate entities, managed by Trustees and the Council was the custodian.

Regarding the current low level of reserves, it was noted that information on the reserves was presented quarterly as part of the budget monitoring process.  In recent years demand pressures for adult social care had outstripped budget for much longer than anticipated which had contributed to the current position.    It was within the remit of the Chief Financial Officer to determine whether reserves were too high or too low.

AGREED as follows that:

1.         the Committee noted that draft Statement of Accounts for 2022/2023 had been approved by the Director of Finance for publication and were currently on the Council website and out to public inspection until 16 February 2024.

2.         Copies of the minutes from the Middlesbrough Development Company Board Meetings would be made available to the Audit Committee.