Agenda

Management comment

General inquiries

1. What do you regard as the key events or issues that will have a significant impact on the financial statements for 2024/25? 

No specific issues have occurred during the year that would have a significant impact.

In terms of accounting changes, IFRS 16 Leases will be the biggest change on the statements.

The proposed go-live of Oracle Fusion on 1^st April should not impact the 2024/25 accounts.

2. Have you considered the appropriateness of the accounting policies adopted by East Sussex County Council?

Have there been any events or transactions that may cause you to change or adopt new accounting policies? If so, what are they?

Yes – these are assessed by the Financial Accounting team each year.

The accounts will be prepared on the basis of existing accounting policies, other than those that need changing due to any changes in financial reporting regulations.  There will be changes required in relation to IFRS 16.

3. Is there any use of financial instruments, including derivatives? If so, please explain

Financial instruments would include treasury investments such as term deposits, notice accounts, money market funds and local authority deposits. The Council also has an investment in the CCLA Local Authority Property Fund, long term loans and current debtors. On the borrowing side, the Council has debt with the PWLB and two market loans. The Council has no derivatives.

4. Are you aware of any significant transaction outside the normal course of business? If so, what are they?

Not aware of anything

5. Are you aware of any changes in circumstances that would lead to impairment of non-current assets? If so, what are they?

Not aware of anything

6. Are you aware of any guarantee contracts? If so, please provide further details

South East Local Enterprise Partnership: potential outstanding loan repayment to SELEP bodies by ESCC.

7. Are you aware of the existence of loss contingencies and/or un-asserted claims that may affect the financial statements? If so, please provide further details

Not aware of any.

8. Other than in house solicitors, can you provide details of those solicitors utilised by East Sussex County Council during the year. Please indicate where they are working on open litigation or contingencies from prior years?

1.     Bhatt Murphy Solicitors to provide advice on an application to judicially review the Home Office regarding asylum seeker hotel accommodation. Fees: £12,245.

2.     Sharpe Pritchard Solicitors to provide specialist advice on the Waste PFI contract. Fees: £3,803.

3.     Sharpe Pritchard to provide specialist NEC/JCT contract advice. Fees - £7,904.

4.     Mayo Wynne Baxter to provide specialist advice relating to end of Ropemaker Park lease. Fees: £4,818

5.     Bevan Brittan providing HR advice. Fees:  £6,820

6.     Invicta Law were instructed to provide advice on Adult Social Care litigation matters. Fees: £2,420

7.     DWF Law to provide specialist costs advice on a civil litigation claim. Fees: £285.

8.     Sharpe Pritchard to provide advice on planning liability dispute. Fees: £3,121

9. Have any of the East Sussex County Council’s service providers reported any items of fraud, non-compliance with laws and regulations or uncorrected misstatements which would affect the financial statements? If so, please provide further details

Not that we are aware of.

10. Can you provide details of other advisors consulted during the year and the issue on which they were consulted?

The Council uses MUFG Corporate Services (formerly Link Asset Services) as its Treasury Management Advisors and PS Tax as VAT advisors.

11. Have you considered and identified assets for which expected credit loss provisions may be required under IFRS 9, such as debtors (including loans) and investments? If so, please provide further details

We carry out an IFRS 9 impairment review exercise each year on our loans, debtor balances etc and post the appropriate expected credit loss adjustments accordingly.

Fraud inquiries

1. Has East Sussex County Council assessed the risk of material misstatement in the financial statements due to fraud?

How has the process of identifying and responding to the risk of fraud been undertaken and what are the results of this process?

How do the Council’s risk management processes link to financial reporting?

Yes

Fraud risk is considered as part of the annual audit planning process and through the fraud risk assessment. The Internal Audit Service contains a dedicated team responsible for Counter Fraud. As part of its work, the team maintains a counter fraud risk assessment and an associated proactive fraud work plan.

Updates on the Counter Fraud Team’s work are provided to Statutory Officers (Chief Exec, Monitoring Officer and Chief Finance Officer) together with the Audit Committee on a regular basis.

2. What have you determined to be the classes of accounts, transactions and disclosures most at risk to fraud?

Under the National Fraud Initiative, the Council provides data for a data matching exercise to compare records held by various bodies to identify potential error or fraud – these include those most at risk of fraud.  This data includes payroll, pensions, creditors, residential care payments, concessionary travel passes, residents parking permits and clients in receipt of direct payments.

3. Are you aware of any instances of actual, suspected or alleged fraud, errors or other irregularities either within East Sussex County Council as a whole, or within specific departments since 1 April 2024? If so, please provide details

As an internal audit team we have been notified of a number of irregularities during the year. No significant frauds have been reported.  A high level summary of cases will be presented in our annual report on irregularity work to Audit Committee in July. Quarterly progress reports are reported to Audit Committee informing members about irregularity investigations and fraud work undertaken by Internal Audit. Details of these can be found with the committee papers on the Council’s website

 https://democracy.eastsussex.gov.uk/ieListMeetings.aspx?CommitteeId=517

 Statutory Officers regularly consider the emerging fraud risk and caseload of Internal Audit & Counter Fraud.

4. As a management team, how do you communicate risk issues (including fraud) to those charged with governance?                                                                                        

See response to 3.

5. Have you identified any specific fraud risks? If so, please provide details

Do you have any concerns there are areas that are at risk of fraud?

Are there particular locations within East Sussex County Council where fraud is more likely to  occur?

Yes – we acknowledge and understand our fraud risks, and we have a dedicated Counter Fraud team to respond to these risks. A risk assessment of potential fraud areas shows most as Low Impact and Low / Medium Likelihood.

Yes – see below

In line with key fraud risks highlighted nationally & consideration of the Council's own fraud risk profile, we believe areas to focus on are:

•       Mandate Fraud

•       Procurement

•       Contracts

•       Schools

•       Direct Payments

•       Grants

•       Payroll

6. What processes do East Sussex County Council have in place to identify and respond to risks of fraud?

Internal audit has a dedicated Counter Fraud team to prevent, detect and investigate fraud. The counter fraud strategy sets out our approach to tackling fraud. We undertake both proactive reactive work, and the proactive work seeks to prevent and identify fraud, and is targeted through a fraud risk assessment.

We have in place a fraud reporting hotline in addition to a confidential reporting (whistleblowing) hotline to encourage the reporting of suspected fraud.

We undertake fraud awareness workshops with services to promote our anti fraud culture and consider and identify the threat of fraud faced by individual services and teams.

7. How do you assess the overall control environment for East Sussex County Council, including:

·         the existence of internal controls, including segregation of duties; and

·         the process for reviewing the effectiveness the system of internal control? 

If internal controls are not in place or not effective where are the risk areas and what mitigating actions have been taken?

 What other controls are in place to help prevent, deter or detect fraud?

 Are there any areas where there is a potential for override of controls or inappropriate influence over the financial reporting process (for example because of undue pressure to achieve financial targets)? If so, please provide details

Internal Audit Plan – annual plan

Financial Regulations

Scheme of delegation

SAP and other systems control and reconciliations

A sound system of internal control is in place and a balanced and flexible internal audit plan allows for sufficient coverage to provide assurance on the internal control environment, and improve any weaknesses identified.

See response to question 6 – proactive and reactive counter fraud work. Anti-fraud culture. Fraud awareness training. Reporting mechanisms for escalating concerns & suspicions.

Not that I am aware of.

8. Are there any areas where there is potential for misreporting? If so, please provide details

There is the potential to misreport any aspect of the Council’s activity but a system of internal control is in place to ensure that the risks of misreporting are mitigated/minimised

9. How does East Sussex County Council communicate and encourage ethical behaviours and business processes of it’s staff and contractors?

How do you encourage staff to report their concerns about fraud?

What concerns are staff expected to report about fraud? Have any significant issues been reported? If so, please provide details

By means of:

Promoting a counter fraud culture through agreed corporate standards / values in the Members & Officers Code of Conduct and the Counter Fraud Strategy (which now includes a statement on fraud by Leadership);

·         annual disclosures by and guidance to Members and staff in gifts and hospitality, external interests and related party transactions;

·         incorporating ethical clauses and Bribery Act provisions in standard terms and conditions for contracts;

·         protections offered by effective recruitment and disciplinary processes.

Staff are encouraged to report concerns through the Confidential Reporting Policy including a confidential reporting hotline. Fraud eLearning and fraud awareness sessions are provided by Internal Audit & Counter Fraud.

Staff are encouraged to report:

·         Practice that puts people or the County Council at risk;

·         a criminal offence has been committed, is being committed or is likely to be committed;

·         failure or likely failure to comply with any legal obligations;

·         health and safety risks, including risks to the public;

·         damage to the environment;

·         something that is against County Council standing orders and policies;

·         information relating to any of these concerns that is being or is likely to be deliberately concealed;

·         weaknesses in procedure(s) that could put the organisation or people at risk.

No significant issues have been reported in 2024/25.

10. From a fraud and corruption perspective, what are considered to be high-risk posts?

How are the risks relating to these posts identified, assessed and managed?

Bank and authorised signatories

Treasury management

Policies & procedures are in place and managed by the established control framework, overall scheme of delegation, segregation of duties and IT Security processes.

11. Are you aware of any related party relationships or transactions that could give rise to instances of fraud? If so, please provide details

How do you mitigate the risks associated with fraud related to related party relationships and transactions?

No.

Requirement for officers to declare any interests / personal relationships (Code of Conduct / Personal Relationships at Work Policy). Management responsible for assessing the risk and taking any control actions i.e. transferring responsibilities / decision making, removing delegated authority, restricting access to information, meetings etc

12. What arrangements are in place to report fraud issues and risks to the Audit Committee?

How does the Audit Committee exercise oversight over management's processes for identifying and responding to risks of fraud and breaches of internal control?

What has been the outcome of these arrangements so far this year?

The Committee receive and review quarterly updates on the work of the counter fraud team. A high level summary of these will be presented in our annual report on irregularity work to Audit Committee in July.

The progress reports capture the emerging risks of fraud (summary of investigations) for the council and any breaches of internal control. Details of these can be found with the committee papers on the Council’s website.

The Counter Fraud Strategy is reviewed and approved by the Committee (last refreshed in September 2021).

13. Are you aware of any whistle blowing potential or complaints by potential whistle blowers? If so, what has been your response?

The whistleblowing hotline continues to be monitored. Any complaints are risk assessed and investigated.

There have been no significant concerns reported through the confidential reporting hotline in 2024/25.

14. Have any reports been made under the Bribery Act? If so, please provide details

We recorded one offer of bribery in 2024/25 in relation to Gypsy and Traveller sites. The officer reported the offer and controls were operating effectively.

Laws and regulations

1. How does management gain assurance that all relevant laws and regulations have been complied with?

What arrangements does East Sussex County Council have in place to prevent and detect non-compliance with laws and regulations?

 Are you aware of any changes to the Council’s regulatory environment that may have a significant impact on the Council’s financial statements?

Internal Audit Plan

Regular reporting and overview

Legal Services and Departments ensure up to date on relevant laws and regulations

Not aware of any.

2. How is the Audit Committee provided with assurance that all relevant laws and regulations have been complied with?

The Audit Committee receive regular reports from Internal Audit; plus the overview of the Annual Government Statement.

3. Have there been any instances of non-compliance or suspected non-compliance with laws and regulation since 1 April 2024 with an on-going impact on the 2024/25 financial statements? If so, please provide details

Not that I am aware of.

The Pension Committee receives regular breaches report that sets out in line with the Breaches Policy those areas that have breached pension regulations and may need to be reported to the Pensions Regulator. No action has been taken by the Pensions Regulator and there are no financial implications arising from breaches in 2024/25.

4. Are there any actual or potential litigation or claims that would affect the financial statements? If so, please provide details

Not that I am aware of.

5. What arrangements does East Sussex County Council have in place to identify, evaluate and account for litigation or claims?

Litigation and claims are received and managed by the Council’s Legal Services Dept and Insurance Centre of Expertise. The annual statement of accounts regarding Contingent Assets and Liabilities following enquiries of staff in service depts, Legal Services and Insurance. Provision within the Council’s constitution and financial regulations regarding claims.

6. Have there been any reports from other regulatory bodies, such as HM Revenues and Customs, which indicate non-compliance? If so, please provide details

The Pension Committee has reported breaches to the Pensions Regulator in line with the Breaches Policy. This has not led to any financial impacts.

Since the last VAT inspection, HMRC have undertaken ad hoc compliance checks for specific supplies and their associated VAT treatment. ESCC have responded to all these requests in a timely manner and HMRC have not found any non-compliance issues.  

Related parties

1. Have there been any changes in the related parties including those disclosed in East Sussex County Council’s 2024/25 financial statements?

If so please summarise:

·         the nature of the relationship between these related parties and East Sussex County Council

·         whether East Sussex County Council has entered into or plans to enter into any transactions with these related parties

·         the type and purpose of these transactions

1. Central Government, 2. Members, 3. Chief Officers, 4. East Sussex Pension Fund, 5. Ashdown Forest Trust, 6. Sea Change Sussex, 7. High Weald AONB, 8. Pooled budgets with CCGs and 9. Orbis public sector partnership with Surrey County Council and Brighton & Hove City Council.

No changes from the prior period.

2. What controls does East Sussex County Council have in place to identify, account for and disclose related party transactions and relationships?

Review of prior year accounts and notes to the accounts.

Partnership and pooling arrangements

Issuing Related Party assurance letters to all Members and Chief Officers

3. What controls are in place to authorise and approve significant transactions and arrangements with related parties?

Financial Regulations set out scheme of delegations and approval process. SAP system has hierarchy of approval within.

4. What controls are in place to authorise and approve significant transactions outside of the normal course of business?

Financial Regulations set out scheme of delegations and approval process. SAP system has hierarchy of approval within.

Going concern

What processes and controls does management have in place to identify events and / or conditions which may indicate that the statutory services being provided by East Sussex County Council will no longer continue?

The integrated Reconciling Policy, Performance and Resources process ensures that the Council Plan and service priorities are aligned to performance targets and financial resources (revenue, capital and reserves). Quarterly RPPR reporting to Cabinet ensure oversight of all issues.

Departmental performance/financial monitoring occurs monthly.

Corporate Management Team meets weekly.

 Are management aware of any factors which may mean for East Sussex County Council that either statutory services will no longer be provided or that funding for statutory services will be discontinued? If so, what are they?

The 24/25 budget is showing an overall overspend of £10.5m at Q2 – which will be funded from reserves, on top of the £14.3m drawn from reserves to set a balanced budget.

Whilst a balanced budget has been set for 2025/26, this required at £11.4m draw from reserves. 2026/27 MTFP shows a projected deficit of £37m; actions will need to be taken during 2025 to address the future deficit – these have yet to be determined, but may include seeking Exceptional Financial Support from government.

With regard to the statutory services currently provided by East Sussex County Council, does East Sussex County Council expect to continue to deliver them for the foreseeable future, or will they be delivered by related public authorities if there are any plans for East Sussex County Council to cease to exist?

ESCC will continue to exist in its current form for the foreseeable future.

The 24/25 budget is showing an overall overspend of £10.5m at Q2 – which will be funded from reserves, on top of the £14.3m drawn from reserves to set a balanced budget.

Whilst a balanced budget has been set for 2025/26, this required at £11.4m draw from reserves. 2026/27 MTFP shows a projected deficit of £37m; actions will need to be taken during 2025 to address the future deficit – these have yet to be determined, but may include seeking Exceptional Financial Support from government.

Local Government Reorganisation will mean the County Council will cease to exist by 2028/29.

Are management satisfied that the financial reporting framework permits East Sussex County Council to prepare its financial statements on a going concern basis? Are management satisfied that preparing financial statements on a going concern basis will provide a faithful representation of the items in the financial statements?

Yes.

The RPPR process provides a solid framework for financial reporting and assessment of going concern.

Accounting estimates

1. What are the classes of transactions, events and conditions, that are significant to the financial statements that give rise to the need for, or changes in, accounting estimate and related disclosures?

The material estimates within the accounts are relating to the LGPS Pension (IAS 19) liability, PPE valuations, PFI liability

2. How does the Council’s risk management process identify and address risks relating to accounting estimates?

The budget monitoring process would identify any differences between budgets and actuals and whether any year end accruals were required. For any accrual over £100k a fuller working paper is required.  In addition to this there would be checks on the data provided by external experts for reasonableness before they are entered into the accounts.

3. How does management identify the methods, assumptions or source data, and the need for changes in them, in relation to key accounting estimates?

The items above in point 1 are provided by external experts (actuary, valuer and treasury advisors)

4. How do management review the outcomes of previous accounting estimates?

With PPE valuations a comparison exercise is carried out to review the movements on the individual valuations and more broadly across the general asset categories each year.  Likewise with the IAS 19 report if the investments in the fund has been partly estimated then there would be a comparison of the final figures to the estimated ones once they become available.

5. Were any changes made to the estimation processes in 2024/25 and, if so, what was the reason for these?

No

6. How does management identify the need for and apply specialised skills or knowledge related to accounting estimates?

It would depend on the nature of the estimate, in terms of whether there is in house expertise of whether it would be more appropriate to seek the skills of an external expert, and potentially also based on the materiality of the potential estimate.

7. How does the Council determine what control activities are needed for significant accounting estimates, including the controls at any service providers or management experts?

Any data provided by an external body would be sense checked for reasonableness and for any significant movements before entering it into the accounts and would raise any queries with them.  We would also ask the relevant teams to review any assumptions used to make sure they appeared reasonable.  In terms of internal estimates, they would be expected to be supported by appropriate working papers and appropriately reviewed if the amount Is material.

8. How does management monitor the operation of control activities related to accounting estimates, including the key controls at any service providers or management experts?

Any material accrual journal with entries over £1m needs authorisation

9. What is the nature and extent of oversight and governance over management’s financial reporting process relevant to accounting estimates, including:

·    Management’s process for making significant accounting estimates

·    The methods and models used

The resultant accounting estimates included in the financial statements.

The budget monitoring process would identify any differences between budgets and actuals, quarterly monitoring reports are taken to Cabinet to explain and significant variances

10. Are management aware of any transactions, events, conditions (or changes in these) that may give rise to recognition or disclosure of significant accounting estimates that require significant judgement (other than those in Appendix A)? If so, what are they?

No

11. Why are management satisfied that their arrangements for the accounting estimates, as detailed in Appendix A, are reasonable?

Yes

12. How is the Audit Committee provided with assurance that the arrangements for accounting estimates are adequate ?

The only material estimates used in the accounts are provided by professional external experts in those relevant fields and there are internal checks in place to make sure both these and any internal estimates are correct and can be supported. The Audit Committee was provided with a training session by Bruton Knowles and Treasury Management training has also been provided.