Agenda item

The External Auditor presented the Audit Planning Report for the year ended March 2022.

The Audit Planning Report set out how External Audit intended to carry out their responsibilities and provide the Corporate Affairs and Audit Committee with a basis to review the proposed audit approach and scope for the 2021/22 audit in accordance with the requirements of the Local Audit and Accountability Act 2014, the National Audit Office’s Code of Audit Practice, the Statement of Responsibilities issued by Public Sector Audit Appointments (PSAA) Ltd, auditing standards and other professional requirements.   The Planning Report also aimed to ensure that the audit was aligned with the Committee’s service expectations.

The plan summarised External Audit’s initial assessment of the key risks driving the development of an effective audit for the Council, and outlined the planned audit strategy in response to those risks.   External Audit’s planning procedures were substantially complete subject to final review, however the 2020/21 audit was not yet complete and should any material changes arise these would be communicated to the Committee as appropriate.

Group materiality had been set at £6.9 million, which represented 1.5% of the gross expenditure on provision of services per the draft Statement of Accounts. The threshold used for materiality assessment had been decreased from the 1.8% of gross expenditure used in the prior year due to the increased interest in the Council’s Statement of Accounts as a result of the significant weaknesses in governance.

Group performance materiality had been set at £3.4 million, which represented 50% of materiality.   The percentage of materiality used for performance materiality from 75% to 50% had been decreased as the volume and size of misstatements identified in recent audits led Audit to conclude there was a higher risk of undetected misstatement.

All uncorrected misstatements relating to the primary statements (comprehensive income and expenditure statement, balance sheet, movement in reserves statement, cash flow statement and collection fund) greater than £0.3 million would be reported. The reporting threshold for the prior year’s audit was £0.4m.  Other misstatements identified would be communicated to the extent that they merited the attention of the Corporate Affairs and Audit Committee.

The Auditor highlighted the following audit risks and areas of focus along with any changes from the prior year:

•           Risk of fraud in revenue and expenditure recognition.

•           Misstatements due to fraud or error

•           Variation of land and buildings.

•           Accounting for infrastructure assets.

•           Valuation of defined benefit pension liability.

•           Member and senior officer relationships.

•           Provision of Children’s Services.

In relation to Accounting for infrastructure assets it was clarified that the Council’s records were not sufficiently detailed to allow identification of individual assets or components.    It was confirmed that the Council had now had a system in place to capture this information but there was insufficient detail for previous years and a reconciliation exercise needed to be undertaken.

It was noted in that report that a high volume of correspondence with regards to the Council was received by the Auditor and much of this correspondence was directly or indirectly linked to the significant weaknesses in arrangements previously reported.  The Auditor confirmed that correspondence was received from a wide range of sources including Elected Members, members of the public and other groups that worked with the Council.  EY considered such correspondence as information brought to the Auditor’s attention for the purposes of the value for money assessment and, where appropriate, designed additional procedures to respond to any risks raised by consideration of that information.

In relation to the proposed Mayoral Development Corporation (MDC) and the Council’s assets, the Auditor clarified that if assets were transferred to different ownership they would not be included in the Council’s accounts.

A discussion took place in relation to the MDC and the Monitoring Officer explained that the Council was currently in discussions with the Tees Valley Combined Authority (TVCA) about the Constitution of MDC and transfer of assets and planning powers.  In terms of any changes to assets, this would affect the budget and policy framework and would need to be brought to the Council for consideration.

AGREED that the information provided was received and noted.