Agenda item

The Committee considered the External Audit Progress report for Annual Statutory Financial Statements for the year ended 31 March 2017.

Sean Pearce, the Chief Financial Officer introduced the report and made the following points:

·         Usually at this stage of the year, the fully audited version of the Statement of Accounts would be reported to this Committee meeting. However due to a number of issues, the audit work had been delayed and therefore it was only possible to provide a progress report. The work associated with the new financial system had taken more officer time than expected. In addition, the old financial system (SAP) had gone into disaster recovery mode for a week. The combination of these factors had impacted on the ability of the finance team audit the Accounts to the required timescale

·         A further audit visit had been arranged with Grant Thornton for the end of August to review the quality assurance arrangements

·         The final Statement of Accounts would be brought to the September Committee meeting which was within the statutory deadline.  

John Gregory from Grant Thornton made the following points:

·         In 2018, the statutory deadline for the Accounts would be brought forward to 31 May and the deadline for publishing to 31 July. The Council therefore had limited room for manoeuvre to meet these timescales

·         There had been a four day delay in the availability of the draft Accounts for inspection by the external audit team and consequently there had been an impact on the availability of his staff to come in and undertake the necessary audit work. A number of errors had been identified in the first draft and it had not been possible for the external audit team to audit a full set of Accounts. There remained a number of queries on the second version of the Accounts

·         The external audit team had worked with the finance team during the interim audit earlier in the year to agree an approach to the more difficult areas relating to the proposed treatment and disclosure in the Accounts relating to: changes to the narrative of the Accounts; and accounting arrangements for the EfW plant at Hartlebury. Unfortunately, the finance team had been unable to respond to the issues raised in the intervening period

·         A number of errors and disclosures had been identified during the audit process to date and it had been agreed that these would be adjusted accordingly

·         There remained a number of outstanding queries which needed to be resolved in order to complete the audit work. A schedule of work had been agreed and the finance team would be given time to complete this work before Grant Thornton returned to complete the audit work

·         The Value for Money audit had been completed and some areas of weakness had been identified in relation to the 'inadequate' rating for Children's Services by Ofsted that required more work. However, it was considered that there was sufficient mitigation of risks in the Council's action plan to propose a qualified 'except for' conclusion

·         A number of issues had been identified from the auditing process for the finance team to review to avoid replication next year.   

In the ensuing debate, the following principal points were raised:

·         It was important to understand the reason for the poor response to the queries raised by the external auditor, whether for cultural reasons or due to a lack of training. John Gregory responded that officers had been appropriately trained. Issues arose from a combination of factors including a failure to understand the training provided and workload pressures. Mark Sanders added that a joint training exercise had taken place to help the finance team to understand what was expected for the forthcoming auditing arrangements however he acknowledged that the outcome was not good enough on this occasion

·         In previous years, the audit work had been completed to schedule. Were the problems experienced this year a one-off occasion or did they give cause for concern for future years? John Gregory commented that generally the previous performance of the finance team had been much better. Specific issues had arisen but had not impacted on timescales. The key factor this year was that the finance team had been diverted away from auditing the Accounts to address other priority issues

·         In response to a query in relation to the risks associated with the Ofsted report, John Gregory explained that the qualification on the Value for Money audit was predicated on the risk highlighted by Ofsted. At this stage, it was too early to fully assess any response from the Council. However in future a more nuanced opinion would be given based on the progress made in response to the Council's action plan and views of other regulators including ministerial letters

·         Was the number of queries raised by the external auditor on the draft accounts considered to be high? John Gregory indicated that usually at that stage he would expect around thirty queries, therefore sixty queries was considered to be too high

·         Sean Pearce commented that although the outcome of the audit work to date was frustrating and disappointing, there was no evidence that any failings were systematic. There were a number of factors that came together to present the 'perfect storm'. However it was important that the problems experienced this year were not replicated next year, particularly given the tighter timescales

·         In response to a query, John Gregory advised that if the IT issues associated with the Council's financial system were not resolved then there could be an impact on the timetable for the audit arrangements for next year's accounts

·         Sean Pearce acknowledged that Quality Assurance needed to improve. Evidence needed to be provided that proved that was a one-off event and not a systematic issue. The Council needed to focus on the arrangements for next year's Accounts  

·         Mark Sanders commented that he did not consider the failings in the auditing arrangements to be systematic. For a number of years this Council had been one of the fastest in the country to complete the audit of its Accounts. In particular, the shutdown of the SAP system had affected the finance team's ability to access essential documentation. However this had now been resolved and an action plan to complete the work had been agreed with Grant Thornton   

·         Was the new IT system now delivering what was expected? Mark Sander stated that work continued to ensure that the IT systems were operating correctly and a test scenario would be undertaken before the close down of the years' Accounts.  

RESOLVED that the progress made on the External Audit of the 2016/17 Worcestershire County Council Statement of Accounts be noted and the plan return to the Committee meeting on 26 September 2017 for final approval.