Agenda item

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 identified in the report, were highlighted:

 

·        Context, both local and national, in respect of Local Government audits.  Middlesbrough was not alone in terms of the timeliness of accounts and completion of audit work.

·        Issues specific to Middlesbrough, which included: the valuation of infrastructure assets; the valuation of the pension liability and related balances; bad debt provisions in relation to the Collection Fund; changes to opening balances; and post pandemic timelines and the availability of resources.

·        The work that had been completed, as set out in sections 1-5 of the audit report.

·        Matters of interest going forward.

·        Presumed levels of risk, which were identified on every audit undertaken.

·        Results and findings: differences in financial statements between 2021/22 closing balance and 2022/23 opening balance; further details were provided on page 21 of the report.

·        No objections had been received in relation to the Council’s Statement of Accounts for 2021/22.  One objection had been received in respect of 2022/23, which related to the Council’s joint application to the Levelling-Up Fund with Redcar and Cleveland Borough Council for funding to improve accessibility in South Middlesbrough, and whether the application for funding had been approved within the Council in accordance with the Council’s Financial Procedure Rules.  This objection had not been accepted; further details were provided on page 22 of the report.

·        Reference was made to page 23 of the report and instances of potential non-compliance.  It was explained that these were not significant to the review; matters were being brought to the Committee’s attention for information only.

The auditor advised that the information contained in the report had been finalised and would be issued as presented, although some final wording was currently being drafted to ensure consistency between value for money factors.

 

The Chair thanked the auditors for the information provided and invited the Committee to ask any questions.

 

In response to a query regarding the objection raised around the joint application to the Levelling-Up Fund, the auditor explained that this did not feature in the respective financial statements.  The objection had not been accepted and was therefore not pursued.

 

A Member referred to government intervention in relation to the value for money report.  It was queried whether government departments were looking more closely at Middlesbrough’s finances as a consequence of the report.  In response, it was commented that the government had issued a best value notice; no further information could be provided.

 

A discussion ensued in relation to the issues that had been encountered nationally in terms of completing audit reviews, which had been driven by a statutory reset.  It was indicated that, nationally, up to 1000 opinions were being disclaimed.  A Member commented on the impact of this upon public perception and the potential knock-on effect for the next couple of years.  In response, the auditor advised that the purpose of the reset was to drive reviews back onto a timely track; the government was keen to emphasise that Councils should not have been disadvantaged because of the reset, and the number of disclaimers being made.  The national issues that contributed to the audit completion delay were outlined in the report; in essence, the resources required to complete were not available.  The Head of Finance and Investment and the Director of Finance advised that the accounts had been prepared professionally with the best intentions based on the information and resources available.  Although the audit had not been completed, significant effort had been made towards the 2021/22 and 2022/23 financial years.  The information had been prepared for the Committee to make judgement on, and for Forvis Mazars to utilise/ consider when concluding on future years.  The Section 151 Officer had a professional responsibility to sign off the accounts with a fair and accurate view, and work had been carried out accordingly to ensure that this had been upheld.

 

A Member referred to internal audit work undertaken in respect of the Teesside Pension Fund and queried whether any administrative costs for that work were charged back to the Fund.  In response, the Director of Finance explained that resource allocation to the team responsible for this work had recently been increased, and that work undertaken would be charged back to the Teesside Pension Fund.

 

A Member commented upon public perception in relation to signing off the accounts.  It was felt unfortunate that the current position may not have been seen favourably by the public, though it was accepted that this could not be avoided.

 

A Member queried whether there was anything further that the Council could have done to have changed the outcome of the audit report.  In response, reference was made to resource limitations and the impact that this had in terms of commencing the audit work, together with wider contextual issues, including the change in backstop date.

 

A Member thanked the auditors and officers for the work undertaken.  It was commented that although lessons learned were important, there had to be a greater accountability over those findings identified.

 

The Chair thanked the auditors and officers for their reports and contributions to the meeting.

 

NOTED

 

**At this point in the meeting, the Monitoring Officer clarified that the interests declared at the start of the meeting were non-pecuniary.**