Agenda item

The External Auditor Ernst and Young had concluded the planned audit work in relation to the financial year 2020/21 and presented the Annual Report to the Committee for information and discussion.

 

The report included the Auditor’s conclusions and recommendations in relation to the audit of the financial statements and in relation to the assessment of the Council’s arrangements for securing robust governance and Value For Money.  The findings had been subject of previous reports to the Committee over the period July 2022 and updates through to April 2023.  However as the Corporate Affairs and Audit Committee had a new membership following the local elections in May 2023, it was appropriate for the Committee to formally consider the Auditor’s Annual Report.  The External Auditor suggested that the audit planning reports for 2021-22 should be circulated to Committee Members for information.

 

The Council provided management responses to the auditor’s 7 recommendations in relation to Value for Money in July 2022 as set out in the Annual Report.  The Council continued to progress the delivery of its Improvement Plan over the last year and the latest progress update was due to be presented to Council on 5 July 2023.

 

The External Auditor’s Annual Report was attached at Appendix 1 to the submitted report and included the following:

 

•           Executive summary

•           Purpose and responsibilities

•           Financial statements audit

•           Value for Money

•           Other reporting issues

•           Appendix 1 – Fees

 

Members’ attention was drawn to paragraph 9 of the covering report which set out in detail the fees for the 2020/2021 audit.  The fees were significantly higher than both the planned fee for the 2020/21 (4.5 times higher) and the final fee for the previous year’s audit.  This related primarily to the length of the audit at just under two years, the increasing changes in both risk and regulation involved with the audit activity, and some of the specific governance issues which culminated in a value for money qualification for the Council.  All these points had been raised previously by EY to both Officers and the Committee.  The increase in audit fees had been acknowledged by the Council and was being factored into the on-going medium-term financial plan.   Given the level of increase in fees, a fee variation request has been submitted by EY to Public Sector Audit Appointments (the regulatory body in this area). The Council could submit its comments as to whether it accepted the fees or not and could provide further explanation or evidence if needed.

 

The External Auditor drew Members’ attention to the following aspects of the Financial Statement Audit and provided further detailed explanation in relation to each heading:

 

Areas of Significant Risk:

 

•           Misstatements due to fraud or error (Council and Pension Fund).

•           Risk of fraud in revenue and expenditure recognition (Council).

•           Valuation of land and buildings (Council only).

•           Accounting for infrastructure assets (Council only).

•           Valuation of unquoted pooled investment vehicles (Pension Fund only).

•           Valuation of directly-held property (Pension Fund only).

 

Other areas of audit focus

 

•           Valuation of defined benefit pension liability (Council only).

•           Going concern and associated disclosures (Council only).

 

Audit differences (Council and Pension Fund).

 

Value for Money (VFM) Assessment.

 

In relation to the longer timescales for audit completion, the financial implications for the Council in terms of audit fees, and whether this would be repeated in future, the External Auditor explained that the requirements were set in legislation.  Pre-pandemic, audits were expected to be completed by July.  However, in 2020 this date was moved to November and then to September the following year.   It was likely that September would continue to be the new end date.

 

Regarding asset valuations, a Member queried whether there was any difference in the Teesside Pension Fund’s valuations and EY’s.  The External Auditor stated that the Council used an external valuer to undertake the valuation and then EY examined the work of this specialist and the methodology.  A sample of the assets would be selected and the data tested for accuracy.  EY’s own specialist would also review a sample of the valuations.

 

A Member commented on the decision making in relation to Boho X highlighted in the VFM section of the report and EY’s view on the communication between the Mayor and a Senior Officer which did not explicitly provide authority.  Several examples were provided within the report where Council policies and procedures were not adhered to.  The External Auditor was asked whether work was ongoing on this issue and it was confirmed that a Governance Audit was currently being undertaken.

 

The Internal Auditor confirmed that audit report on the Middlesbrough Development Company was close to completion and would be made available to Committee Members once finalised.

 

AGREED as follows that:

1.         the content of the External Auditor’s Annual Report was received and noted.

2.         audit planning reports for 2021-22 would be circulated to the current Committee membership.