Agenda item

The Committee considered the External Auditor - Annual Audit Letter 2019/20 and 202/21 Progress Report and Sector Update.

Peter Barber, Key Audit Partner from Grant Thornton, the Council’s external auditor introduced the report and made the following points:

Annual Audit Letter

·         The Whole of Government Accounts had been completed on 1 February 2021

·         The format and wording of the Annual Audit Letter had been changed for the benefit of stakeholders. The Council was encouraged to publish it on its web site.

Audit Progress Report and Sector Update

·         In relation to certification work, the teachers’ pension fund return had been signed off on 9 February which brought the 2019/20 audit to a close

·         The 2020/21 Audit Plan for the Council and the Pension Fund had not yet been issued. 2019/20 Audit work was ongoing for a number of other councils and external audit resources had been directed towards the completion of those audits. In addition, there had been a complication in terms of ethical standards of the audit work with a member of external auditor’s audit team, who had worked on this Council’s accounts, joining the Council’s Internal Audit team next month. To allay concerns about independence, the external auditor had received an assurance from the Chief Financial Officer (CFO) that that particular officer would not be involved in work associated with the 2020/21 Accounts. In addition, the external auditor had put in place a series of safeguards in relation to access to files. He asked that the Committee endorse these associated governance arrangements

·         Under ethical standards and FRC guidance, an external audit manager was allowed to work on a particular audit for a maximum of 10 years. The PSAA who were responsible for appointing the external auditors had a lower threshold of 7 years with an opportunity to extend for a further 3 years if appropriate. Recruitment of experienced auditors had proved to be an issue for the external auditors. The current Engagement Manager was very experienced and PSAA approval had been sought to extend her engagement for a further year (In total, 8 years for the Council and 9 year for the Pension Fund (similar disclosures were made for the Penson Fund last year)). Safeguards had been put in place including an internal Grant Thornton peer review (Quality Support Team) of both the Council and Pension Fund audit files during the 2020/21 cycle and the CFO had indicated that he was comfortable and understood the reasoning on quality grounds for the re-engagement for a further year. He asked that the Committee endorse this reappointment and the associated governance arrangements

·         Materiality had not be determined yet but would be assessed on a similar basis to previous years for both the Council and the Pension Fund

·         The audit plan work would focus on the significant risks for the Council which were not dissimilar to the 2019/20 accounts including revenue recognition and management override, valuation of land and buildings, and valuation of net pension liability

·         Work would continue to focus of the Accounting Estimates for land and buildings and pensions to ensure management had an understanding of these estimates and that those in governance understood that there were controls in place. A report on the management response would be brought to a future Committee meeting

·         A key focus of the audit of the Pension Fund would relate to Level 3 investments. The external auditor would also be seeking to ensure that there were sufficient checks and balances in place to challenge expert advice received by managers

·         Value for Money – This work had yet to be planned. It was intended that a plan would be submitted to the Council by the end of March/beginning of April. The plan would then be circulated to Committee members before the next meeting. 

In the ensuing debate the following points were made:

·         The Chairman indicated that he was satisfied that reasonable safeguards had been put in place to ensure the independence of the work associated with the audit of the accounts following the move of an external auditor to the Internal Audit team at the Council. He also recognised the good professional relationship that had been established with the current Engagement Manager over a number of years. He noted the recruitment issues facing the external auditor and the impact that any change of manager could have on the audit quality and process at this stage. He was happy to endorse both proposed courses of action

·         The re-appointment of the current Engagement Manager provided an important element of continuity for the accounting process. Her ability to understand and challenge processes was also recognised

·         Reassurance was sought that there would not be any impact on the Council’s auditing process as a result of the late submission of the audit plan. Peter Barber responded that although at this stage work was behind schedule, the target remained to meet the deadline for the publication of the accounts at the end of September however, this aim was predicated on there not being any further resourcing issues. Those audits that had been completed first last year would be prioritised this year, including Worcestershire County Council. Mark Sanders, Deputy Chief Finance Officer (Corporate Finance) added that the accounts team had been strengthened over the last year and were now at full complement. Despite the absence of an audit plan, preparation work for the accounts continued and the programme of work was on track, albeit with contingency arrangements in place. The aim was to bring the draft accounts to the Committee meeting in July 2021

·         The Chairman indicated that the arrangements for the publication of the Accounts had improved considerably over recent years and he was confident that the Accounts team in liaison with the external auditor would be able to meet the deadline for its publication.   

RESOLVED that:

a)    The Annual Audit Letter 2019/20 as set out in Appendix 1 to the report be noted;

b)   The content of the External Audit Progress Report and Sector Update as set out in the Appendix 2 to the report be noted;

c)    The appointment of the current Engagement Manager as the external auditor’s Engagement Manager to the Council for a further year along with the associated governance arrangements undertaken by the external auditor be endorsed; and

d)   The governance processes put in place by both the Council and the external auditor to ensure that there are no conflicts of interest following the appointment of an officer from the external audit accounts team to the Council’s accounts team be endorsed.