Items 4.1 and 5.1 were taken in conjunction of each other. Deloitte presented their findings in relation to the external audit they had undertaken and Mr Neville Murton, Corporate Director for Resources and Mr Kevin Bartle, Divisional Director for Finance, Procurement and Audit commented and added to the findings.

By way of introduction, Mr Kevin Bartle, Divisional Director for Finance, Procurement and Audit addressed the Committee stating the draft Accounts being presented at the meeting were not complete and therefore could not be signed off by the Committee. Mr Bartle said that whilst it was disappointing not to achieve the deadline of 31^st July, the finance team was putting in significant effort to provide the information requested by the external auditors so to ensure the situation was rectified as soon as possible.

In response to questions from Members the following was noted:

·         Mr Murton, Corporate Director for Resources was asked to put into context the significance of not meeting the deadline. Mr Murton said it was not unusual for local authorities not to get the accounts signed off by the deadline of 31^st July. Quite a few other Authorities were in the same position. He said the statutory deadline had moved from September to August and now the end of July, and although this was not an excuse as to why the deadline had not been achieved, other factors had played a part. There had been a restructure of the finance team, and this had impacted staff morale and delivery. However the finance team was working alongside the external auditors and had an action plan in place to ensure a robust response was provided to the outstanding queries. Mr Murton indicated that by the end of September the accounts would be in a state whereby they could be signed off.

·         In response to whether there would be financial penalties for not meeting the deadline, Mr Gooding, external Auditor clarified the local authority would not be fined for missing the deadline but may experience reputational damage.

The Chair invited Mr Gooding, external auditor from Deloitte to present his report.

Mr Gooding said the auditing of the accounts was an on-going process and involved a lot of work. He acknowledged the restructure had impacted on the delivery of information requested such as the lists of schedules and query resolution. For example, the trial balance for the Pension Fund had not been received. Mr Gooding said this consequently meant the separate opinion on the Pensions Fund could not be provided to the Committee.

Mr Gooding said the scope of their audit had not changed as per the plan which was submitted to the Audit Committee in April 2019. The update report made several recommendations on the significant risks identified. Mr Gooding referred to the risk of management override control, which is a risk external auditors must presume exists and said that the journals to test the effectiveness of transactions made and identify the risk of fraud were received when they were finalising their report, as a result they had yet to complete their testing. Mr Gooding continued saying the report provided a commentary on significant risks such as the valuation of property assets, capital expenditure, pension liability and the implementation of IFRS 9 and IFRS 15. Observations in relation to the narrative and how this can be approved were also included in the report.

Mr Angus Fish, from Deloitte then took members through the reminder of the report stating pages 12 -15 of the supplement agenda pack gave an opinion against each risk. Control observations were cited at pages 20-23 and suggestions on how the accounts can be improved were listed at page 24. 

In response to Member questions the following was noted:

·        In response to what the risks of management overriding controls was, Mr Gooding said this refers to journal entries made on the accounting system, whereby management have overridden the controls and have applied their own judgements. In other words, they have manipulated the estimates. In order to test for fraudulent entries Deloitte require access to the data, to review it.

·        In response to why it has been difficult to obtain access to data, Mr Murton said there is a huge volume of data that needs to be extracted and the size of the data presents challenges. Mr Gooding added that descriptions were missing making it hard to trace who had posted the journal. However the missing information had been worked through and progress was being made. Mr Bartle added that providing information when the Council switches auditors, as is the case for this Council, means information required by the external auditors needs to be presented in a different way and this can pose challenges.

·        In response to what involvement Grant Thornton, another accounting firm, had in producing the accounts, Mr Murton clarified they had had no involvement. Mr Murton clarified for Members that Deloitte had been contracted to provide an opinion over the accuracy and completeness of the Council’s accounts and prior to Deloitte, KPMG were the Council’s auditors. Mr Murton said Grant Thornton were involved in the initial scoping of the finance restructure but this was not connected to the annual assurance process for the accounts.

·        In response to how confident the external auditors were that they would complete their audit by the end of September, Mr Gooding said there was a Deloitte team on site at the Council throughout August to progress the work, resolve outstanding queries and finalise the audit but progress had been slow.

·        In response to how many other Local Authorities had missed the deadline last year, Mr Bartle said approximately 30-40 authorities out of three to four hundred local authorities nationwide. Mr Bartle continued and said that this does add pressure but he was determined to ensure the accounts were ready for sign off by the end of September. Mr Bartle said the restructure of the finance function had a big impact, but he would be reviewing the processes followed and would be taking forward a lesson’s learnt exercise.

·        In response to if the previous year’s audit would in any way be reviewed to identify any control deficiencies and the role of Internal Audit, Mr Bharat Mehta, Audit Manager, stated that the recommendations made by the external auditors would be reviewed by Internal Audit and where appropriate included in the Annual Internal Audit Plan, which the Audit Committee has oversight for. Mr Murton added the change of auditors had caused problems, however there was a need for the Council to improve its accounting procedures. It was essential for the local authority to get this right next year. A lot more work was required during the year rather than the end of the financial year to start the audit process.

·        In response to when did it become apparent the deadline of 31^st July was not going to be achieved, Mr Bartle said approximately two to three weeks ago. Whilst the teams were working hard to achieve the goal of 31^st July, it gradually materialised that the accounts would not be delivered in time for the deadline. Mr Bartle said regular meetings with Deloitte managers made it clear this deadline would be unattainable.

Members concurred there was considerable work the Finance team had to do in rectifying the situation and to ensure the reputational risk to the Authority was limited.

Members of the Committee RESOLVED to NOTE:

1.    the unaudited Annual Financial Report including the Statement of Accounts for the financial year ending 31^st March 2019;

2.    the officer action plan to address audit matters arising; and

3.    the initial report from the external auditors as presented at item 4.1 of the agenda. A final report will be brought to the next meeting of this committee.