Agenda item

The Committee considered an update on the progress of the Statutory Accounts 2020/21.

Mark Sanders, Deputy Chief Finance Officer introduced the report and commented that nationally only 9% of councils had had their accounts signed-off by the external auditor by the end of September 2021. To date, 77% of councils had not yet had their accounts signed-off. In relationto  this Council’s Accounts, the changes made since the report to Committee in September had been highlighted in yellow and mainly related to disclosures that had no material impact on the Accounts. There had also been one update to the Group Accounts.

He explained that unfortunately, Grant Thornton had notified the Council that it would not be possible to sign-off the Statement of Accounts at this meeting due to a new last-minute technical issue that had arisen. The issue related to the way in which Place Partnership Limited (PPL) had been recorded in the draft Accounts of a partner organisation which was inconsistent with the recording in this Council’s and other partner’s Accounts.

Peter Barber, Key Audit Partner and Helen Lillington, Senior Audit Manager from Grant Thornton, the Council's external auditor presented the External Audit Findings Report and commented that:

·         The changes made to the Accounts since the Committee meeting in September had been of a technical nature and did not impact on the stability and financial resilience of the Accounts

·         Grant Thornton was the external auditor for each of the local authority shareholders of PPL, and, under its commercial arm, was also the external auditor of PPL. It came to Grant Thornton’s attention that there was an inconsistent treatment of PPL across the 3 partner shareholders’ accounts. Although the sums involved (£5/6m spend) was considered immaterial, there were significant assets and liabilities in the Pension Fund. It was important to see a consistent approach to the audit of PPL to ensure that there was no double-counting or any matters omitted. It was therefore not possible to sign-off the Accounts until this matter was resolved. A meeting of all the auditors involved with PPL would be held next Tuesday

·         The changes to the Accounts mainly related to Capital Financing Regulations and Financial Instruments

·         The key issue in relation to Capital Financing Regulations concerned the way in which the Council had treated its PFI arrangements with West Mercia Waste in its Accounts. The Accounts had been amended to show the capital financing requirements and the Council’s underlying need to borrow separately within the disclosure notes to the Accounts. As this was a disclosure, there was no impact to the Council’s Reserves, Balance Sheet or financial resilience

·         The external auditor was required to report all non-trivial misstatements and disclosure changes. Most of the disclosures related to the Financial Instruments and a large number of changes had been required. Some of the changes had been made now but some would need to be made in later years.

In the ensuing debate, the following points were made:

·         Concern was expressed about the external auditor’s access rights to the audit data across partner authorities. Peter Barber responded that Grant Thornton respected the independence and confidentiality of partner authority’s data but as the external auditor, it was appropriate to examine all appropriate disclosures and given that PPL was co-owned it was possible for Grant Thornton to access the information. It was not necessarily a case that this Council’s approach to auditing PPL was incorrect but establishing the appropriate and reasonable approach across the partner authorities

·         In response to a query, Helen Lillington explained that the Council changed their accounting policy in relation to the MRP for PFI arrangements four years ago. This was some time after the Council had set up its PFI arrangements with Mercia Waste Management.  At that time, there had not been an issue in terms of the material impact of these arrangements on the Accounts. However, a couple of recent high profile national MRP accounting issues had arisen, and as a result, MRP arrangements had become a major area of focus for external audit

·         Concern was expressed that members were required to make a decision on the Accounts having received extensive documentation at very short notice with very little time to read and understand them. An assurance was sought that members would not receive the accounts at such short notice in the future. The Chairman responded that he took on board these concerns. There were mitigating circumstances for the late despatch of paperwork but in the future, every effort would be made to avoid this scenario being repeated

·         In response to a query, Rachael Hart, Financial Reporting Manager indicated that following the issues raised by the external auditor in relation to PPL, a working group had been established with partner authorities to share best practice

·         Was it appropriate to continue with the same valuer for a 5 year period? Rachael Hart indicated that the Council had previously used PPL as its valuer but had recently reappointed Wilks Head & Eve for its property valuations. Wilks Head & Eve had previously been used by Grant Thornton and their appointment was in line with best practice. Helen Lillington added that the valuation of the Council’s property portfolio was a significant piece of work and risk. There had been a national issue regarding the quality of external valuations but the paperwork provided by the Council’s valuer was of a high standard

·         The preparation of a lessons learned report following the Accounts process was welcomed. Were officers confident that the audit resources and processes were in place to meet the statutory deadlines next year? Rachael Hart responded that there were two steps in the Accounts process, accounts preparation followed by the statutory audit process. The accounts closedown plans and associated risks had been set out for next year. The finance team had always met its internal deadlines. In due course, the finance team would agree with Grant Thornton a timetable for the submission of papers and for answers to queries. The Chairman added that the difficulties experienced this year were outside the control of the County Council. The finance team had been provided with sufficient resources to do the necessary work and had met all the deadlines

·         Peter Barber confirmed that the Council did have strong arrangements in place for the preparation of the Accounts. He emphasised that there were no changes to the materiality of the Accounts as a result of the last minute technical issues. He acknowledged that the preparation of the Accounts had become more resource intensive process for both the finance team and the external auditor. He anticipated that less than 50% of local authority accounts would be signed off by Christmas. He was concerned that this delay would impact further on the arrangements for the 2021/22 accounts nationally

·         Would there be any impact on the external audit fee as a result of the extra work involved with the preparation of this year’s audit of Accounts? Peter Barber confirmed that there had been a lot of additional work required and therefore a further fee uplift of £7k was being proposed, subject to approval by the PSCAA. The final fee would be determined after the work on the Value for Money (VFM) audit had been completed

·         When would the outcome of the VFM audit be reported to Committee? Peter Barber responded that due to the increased scope of VFM audit work, the Government had set the deadline to three months after the sign-off of the Accounts. He therefore anticipated that the VFM audit findings would be reported to the March 2022 Committee.

RESOLVED that:

a)    The Updated Audit Findings Report at Appendix 1 be noted;

b)   The Final Accounts Pack at Appendix 2, including the Statement of Accounts for the financial year ended 31 March 2021, be noted;

c)    The Chairman, in consultation with the Vice-Chairman of the Committee and the Chief Financial Officer, be authorised to approve the Final Accounts Pack including the Statement of Accounts for the financial year ended 31 March 2021 at the conclusion of residual audit fieldwork and on the basis that that there are no material changes to the primary accounting statements reported at Appendix 2 (Comprehensive Income and Expenditure Statement, Movement in Reserves Statement, Balance Sheet and Cash Flow Statement);

d)   The Chief Financial Officer be authorised to sign the Letters of Representation on behalf of the County Council once the Final Accounts Pack is approved; and

e)    Subject to the approval of the Worcestershire County Council Statutory Accounts 2020/21 by the Chairman in consultation with the Vice-Chairman, the Chief Financial Officer be authorised to arrange for the Annual Governance Statement 2020/21 to be formally signed by the Chief Executive and Leader of the Council.