Agenda item

The Committee considered the External Audit - Council and Pension Fund Audit Plans and Informing the Audit Risk Assessment.

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

Worcestershire County Council External Audit Plan

·         Due to a backlog of work associated with the 2019/20 audit process, the Audit Plans were being reported to the Committee later than usual

·         Following the creation of Worcestershire Children First, the Council had been required to produce group accounts in 2019/20 and this would continue into 2020/21 accounts process

·         Materiality for the Council’s accounts had been set at 1.5% which equated to £13m

·         In April 2020, the National Audit Office introduced a new Code of Audit Practice which came in effect from audit year 2020/21. The Code introduced a revised approach to the audit of Value for Money (VFM). The Code required auditors to structure their commentary on arrangements under three specified reporting criteria: Improving economy, efficiency and effectiveness, Financial Sustainability; and Governance. The deadline for producing the VFM audit opinion had been extended for a further three months after the accounts deadline

·         Discussions would take place with the Council about the scale of the external audit fee because there was a proposed sizeable increase in the fee, particularly in respect of the VFM audit work

·         There had been a reduction of £2.5k to 2019/20 fee which had been originally set at £102,393. The reduction was due to a cost of work undertaken on behalf of Grant Thornton for Property, Plant and Equipment that ended up less than expected and this reduction was therefore passed onto the Council

·         A member of the Grant Thornton team had moved across to the County Council finance team. That member of staff had not been involved in the auditing process to ensure it did not impact on the independence of the audit process. In addition, the PSAA had granted the external auditor’s Engagement Manager an extension to allow her to work on the 2020/21 accounts.

Worcestershire Pension Fund External Audit Plan

·         The materiality of the Pension Fund had been determined to be £26.4m which equated to 1% of the prior year net assets. This had increased from the previous year due to an uplift in the financial markets and consequent increase in the value of the Pension Fund

·         The valuation of Level 3 Investments was the most significant risk for the Pension Fund. Although the Pension Fund had a low number of such investments, it was still regarded as a significant risk.

Informing the audit risk assessment for Worcestershire County Council and the Pension Fund

·         As part of the risk assessment procedures, external audit was required to obtain an understanding of management processes and the authority’s oversight of General Enquiries of Management; Fraud; Laws and Regulations; Related Parties; and Accounting Estimates. He was satisfied with the level of understanding in the responses received from management to a series of questions relating to these areas but the Committee also needed to satisfy itself.

In the ensuing debate the following points were raised:

·         In response to a query about the timeframe for the completion of the audit of the accounts, Peter Barber indicated that the work on the Pension Fund accounts had been prioritised and was very well progressed. Audit work on the accounts was in its early stages. The aspiration was to bring the audited accounts to the September Committee meeting

·         In response to a query about the process for determining the external audit fee, Peter Barber indicated that the fee was calculated retrospectively but with an understanding of the work that was being undertaken at present

·         Would there be any further changes to the external audit fee going forward? Peter Barber responded that the fee would need to take account of the work associated with the new VFM criteria. Michael Hudson commented that the fee had increased considerably over recent years. The Government would be issuing a grant to Councils to recognise the extra work involved but the amount was not yet known. He queried whether the reduced fee for the work associated with Property, Plant and Equipment would continue into future years. Peter Barber indicated that he was optimistic that this reduction would continue but it had not filtered into the plans yet

·         Although there had been a large jump in recent fees, the Redmond Review had argued that fees had been kept artificially low and these increases should bring the fees nearer to where they should be

·         It was queried whether the proposed fee for 2021 would radically alter as a result of the VFM work. Peter Barber responded that the fees were set as at May 2021 but there could be changes to reflect any additional work undertaken by external audit

·         The Chairman welcomed the progress made on the audit of the accounts albeit from a later starting position and he thanked the Chief Financial Officer and finance team for their work to date

·         Peter Barber explained that it was highly unlikely that the VFM audit work would be completed by the September Committee meeting because it was very time-consuming. The target was to complete this work before the end of December 2021

·         What would happen if the VFM audit work was not completed by the end of December? Peter Barber explained that the external auditor would not be able to certify the accounts which would remain open until this work was concluded

·         The Committee was satisfied with the responses received from management to questions raised by the external auditor in respect of the audit risk assessment.

RESOLVED thatthe content of the external audit plans and the Informing the Audit Risk Assessment reports be noted.