Agenda

Management comment

General inquiries                                                                                                          Management Response

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

Beyond some investment changes there has been no major events this year. There have been 3 investment changes during the year 1) in April we moved to a multi asset credit manager Bluebay. 2) We have increased our index linked gilts via an agreed trigger mechanism, so this has increased by 3% funding this has come from out equity and absolute return mandates. 3) We transferred all our Property assets that were previously managed by Schroders to the ACCESS Pool property manager CBRE. This was a “like for like” transfer, therefore causing no change to asset weightings.

2. Have you considered the appropriateness of the accounting policies adopted by  East Sussex Pension Fund?

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

Our accounting policies are looked at when preparing the accounts to ensure we are in line with the CIPFA guidance on these costs.

No

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

Derivatives are permitted within the Fund for the purpose of efficient portfolio management or to hedge specific risks

We have one investment where we directly hold derivatives, this is our UBS Osmosis passive segregated mandate

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

No

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

No, we have not come across any circumstance that has led to and impairment of a non-current asset the investments in the Fund are reported at fair value.

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

The Pension Fund has not entered into any financial guarantee contracts where it would be required to make specific payments to reimburse the holder for a loss it incurs with regards to the terms of a debt instrument.

Currently from last year’s accounts The Fund is in receipt of :-

7 guarantees by local authorities participating in the Fund

2 guarantees by Academies participating in the Fund.

9 guarantees by local authorities participating in the Fund.

1 guarantee by Parent company sub-contracting to one part of the company, hence being guarantor for itself.

1 Parent company guarantee.

1 deposit held by East Sussex County Council.

1 Subsumption Agreement

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

No there is no existence of loss contingencies and/or un-asserted claims that may affect the financial statements.

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

For pension law matters, the Fund instructs Eversheds to provide advice.

For matters relating to ACCESS advice is taken from Squires Patton Boggs

9. Have any of the East Sussex Pension Fund’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

No

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

Isio/Hymans Investment advice

William Bourne, Investment advice,

Barnett Waddingham, Scheme Actuary

Mercer, GMP

ITM, Address tracing

Northern Trust - Custodian

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 have not identified assets which are expected to have a credit loss provision

Fraud inquiries

1. Has East Sussex Pension Fund 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 Pension Fund’s risk management processes link to financial reporting?

The internal audit team from East Sussex County Council have not identified any risks relating to fraud therefore there is considered to be a low risk that there would be a material misstatement in the financial statements.

There is segregation of duties between those generating the transactions and those authorising and those physically actioning transactions. Fraud is also an area that the internal audit team of the council consider during their audits of the Fund. 

The Fund maintains a risk register which is reported to both Pension Board and Committee and they are informed if there is a change in the risk rating of the items on the risk register

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

The classes of accounts most at risk of fraud would be those that are dealing with cash payments into and out of the Fund.

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

No

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

The Pension Committee and Board receive reports from the internal audit team to look at the controls in place within the Fund. There is also a risk register that goes to each committee and board to update the committee and board of any changes to the risks to the fund. The committee and board also receive reports on the breaches within the Fund so that they are aware of these.

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 Pension Fund where fraud is more likely to occur?

Pension transfers are a specific fraud risk and the fund has self certified in the TPS scam pledge and has undertaken training on this type of fraud.

The Fund believes it has appropriate controls in place to mitigate the risk of fraud such as segregation of duties, authorised signatory and call back lists and procedures to follow.

The Fund does not consider that fraud is more likely to occur anywhere in particular within the Fund and maintains vigilance on all aspects of the financial affairs of the Fund.

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

The Fund have a Risk Management policy (which is published on the website). We have procedures in place to mitigate the risk of fraud by segregation of duties. Any payments made require payment team to process this which then has to be approved by one of our managers in our accounting system. We also have a call back system in place with Northern Trust our custodians. If we need to transfer money from the investment fund to our cash fund. Once the transfer paperwork has been completed and a request has been made NT will contact a different senior member of the team to approve this request to ensure this request is genuine. We have a hierarchy of approvers for payments that need to be made, where we have

multiple senior manager signoff for financial transactions.

Plus, the higher the value of the transaction the value the more senior member of the staff needs to sign and authorise the transaction.

7. How do you assess the overall control environment for East Sussex Pension Fund, 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

The internal audit function of East Sussex County Council monitor the control environment of the East Sussex Pension Fund and report its findings to the pension board and committee.

The internal audit reports will highlight any areas that could be improved, and management actions are provided against these. These are then followed up by the internal audit team.

Internal controls have been assessed against the requirements laid out by TPR to ensure best practice is achieved.

Other controls in place are:

Segregation of duties

Multiple senior manager signoff for investments

Checks required by law and/or recommended by TPR for transfers out

Training to be identified and offered to staff to build understanding of risk and appropriate

mitigations

Monthly mortality checks

Regular member tracing exercises

Quarterly Budget monitoring reports

Custodian to hold investments

The Pension Fund does not perceive there to be the potential for any management override of the controls in place or an inappropriate influence over the financial reporting process.

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

No

9. How does East Sussex Pension Fund 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

Staff are given training online when we all start our roles about if we suspect fraud we need to report

There is an ESCC Fraud Awareness training module that employees can take online which explains:- 

 what fraud is and the importance of tackling it; encourage you to think about the fraud risks in your service; discuss your role in preventing, detecting and reporting fraud; tell you how suspected fraud can be reported

The Council also has an Anti-Fraud and Corruption Strategy this forms part of the Council's counter fraud framework, a collection of interrelated policies and procedures including the Code of Conduct, Financial Regulations and Whistle Blowing Policy. It also includes policies and procedures that are specifically targeted at countering fraud and corruption. such as anti-Money Laundering Policy and Whistleblowing Policy.

Known scams targeted at the council are also shared by the accounts payable team when they occur.

The transfer out process has been updated and staff have been trained to assess for amber and red flags to identify and protect from fraud in these cases.

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?

The Fund’s conflicts of interests policy sets out in conjunction with the code of conduct how these should be mitigated and specifically sets these out for the following roles:

all members of the Pension Committee and the Pension Board, including scheme member and employer representatives, whether voting members or not;

officers of the Fund;

the Chief Finance Officer (Section 151 Officer),

the Chief Operating Officer and

all advisers and suppliers to the Fund

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

The Pension Fund is run by a separate team from the council with the Section 151 officer retaining the statutory responsibilities with delegations made to the Head of pensions to ensure that separation is maintained between the Fund and council.

Each officer is required to complete a declaration of conflicts of interest and would be removed from the decision making process if there was a conflict or perceived conflict of interest. All committee and board members are required to provide a conflict of interest on any topic discuss and to remove themselves from the decision making process.

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 Council has an Anti-Fraud and Corruption Strategy this forms part of the Council's counter fraud framework, a collection of interrelated policies and procedures including the Code of Conduct, Financial Regulations and Whistle Blowing Policy. It also includes policies and procedures that are specifically targeted at countering fraud and corruption. such as anti-Money Laundering Policy and Whistleblowing Policy.

A dedicated Counter Fraud team was established within Internal Audit. This team are now responsible for the investigation of all allegations of fraud or financial irregularity across the East Sussex County Council.

An annual report is provided to the Audit committee by the counter fraud team.

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

No

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

No

Laws and regulations

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

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

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

We have Governance and  Compliance team in place which ensures we are in compliance with the relevant laws

There is a breaches policy in place that sets out the expectations around identify and recording any breaches of law and how these are considered and reported to pension board and committee

This team will regularly review consultations to identify forthcoming changes in the law so preparations can be made

We also have an internal audit team who audit this compliance team

We have put notes in our financial statements about the impact of the environment on our investments

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

The compliance team will report each quarter to the Pensions Board and Pensions Committee on any issues.

We also have internal audit team that ensures that this team is being audited and report separately to the Pension Board and Committee.

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

Breaches of law are reported to the pension board and committee at their quarterly meetings. There have not been any breaches that would materially affect our financial statements.

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

There has been no litigation against the Fund nor do we consider there to be any potential litigation.

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

We have and IDRP process where we look at complaints where people have not had their complaints quickly resolved.

Officers also meet with Eversheds each month to discuss ongoing work and any emerging scenarios allowing for early identification where there is a risk of legal action.

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

No

Related Parties

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

If so please summarise:

·         the nature of the relationship between these related parties and East Sussex Pension Fund.

·         Whether East Sussex Pension Fund has entered into or plans to enter into any transactions with these related parties

·         the type and purpose of these transactions

No change

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

The East Sussex Pension Fund is administered by East Sussex County Council.

Therefore there is a relationship between the council and the fund

Each member of the Pension Committee is required to declare their interests at each meeting.

There is a conflicts of interest policy for the Fund

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

The Pension Fund team is separate from the County Council and approval must be received from both the Fund Team and any respective team from the council before transactions can be processed.

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

The Head of Pensions and section 151 officer would have to approve any significant transactions outside of the normal course of business this would be reported to the Pension Board and Committee at the next available opportunity.

Going Concern

1. 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 Pension Fund will no longer continue?

We regularly check our cash balances and do cash forecasts to ensure that we can pay our pensioners each month

We also ensure that our employers pay their contributions on time and chase any late payments and penalise and report any repeat late offenders

We have a global custodian in place to safeguard the Funds investments.

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

There are currently no factors

3. With regard to the statutory services currently provided by East Sussex Pension Fund, does East Sussex Pension Fund 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 Pension Fund to cease to exist?

East Sussex Pension fund should continue to deliver for the foreseeable future there are no plans for the fund to cease

4. Are management satisfied that the financial reporting framework permits East Sussex Pension Fund 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

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 valuation of the of the Fund’s investments are material to the financial statements especially the level 3 investments which are not based on active markets. The promised retirement benefit liability valuations these are based on assumptions around the life and level of benefits which will be paid out in the future discounted to present day values.

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

The Fund uses the values held by its custodian to account for its investments these are monitored against the fund managers valuation reports to the Fund. The value of these over the period of the creation of the account is monitored to identify if there is a material misstatement of the investment values as at the 31 march.

To identify level 3 investments the custodian will provide the Fund with a list of the assets and classified these either against the automated generated level or the level the Fund has determined the investment to be if different. This is reviewed by the Fund and any amendments are highlighted to the custodian and the records are updated.

The Fund appoints an appropriate Actuarial firm to undertake the valuation of the Funds liabilities the fund provides the data to the actuary to provide the calculation and a full valuation is undertaken every 3 years.

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 Fund has independent/investment consultants, investment managers and custodian to inform the fund on the investment characteristics of the Funds assets. Understanding of the valuation process of the managers and custodian will inform the assumptions and methods that the fund employs.

For the pension liabilities at the valuation the fund uses club vita to help with its mortality assumptions and the pension committee is provided with training to help understand and agree the assumptions used.

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

Investments are reviewed quarterly in depth by the investment consultants and the pension committee checks are performed monthly/quarterly based on the availability of information on the assets to ensure that the valuations are the same.

The Valuation is undertaken every three years as part of this it compares the assumptions made against the actual performance over the last three years.

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

No changes made

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

The Fund utilises multiple sources to help it identify areas that it requires specialised skills from the regulations to its accounting body CIPFA it attends relevant conferences and shares knowledge with other Funds through the ACCESS pool and wider networks of LGPS funds.

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

The Fund discusses with its custodian on a regular basis to understand the control activities are being undertaken by them. We also receive the external control reports and review theses from the custodian, and investment managers and any qualified reports are reported to the pension committee.

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?

We would check valuation policy has not changed and confirm they are valuing their investments in line with their policy.

Send email to managers to get the valuation policy and confirmation to confirm there are no material accuracy issues that they are unable to calculate and we keep a copy of it

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 Pension Fund accounts are created by the investment and accounting team these are peer reviewed internally by the Head of Pensions and the Chief Finance Officer. Challenge is provided around the figures and assumptions set out in the accounts.

If it was identified that a new significant accounting estimate was required it would be discussed and a proposal put forward to the Head of pension to agree or modify before it was used.

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?

The valuation of investments are based on industry standards and there is a high level of monitoring of all the investments held by the Fund which are reported to the pension committee. Training is also provided to the committee and officers are up to date with the latest guidance on how to account for these.

Promised retirement values are based on the valuation data which goes through multiple checks for accuracy and the assumptions are set out clearly with training provided to committee to understand and agree these.

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

We report our accounts to the Pensions Committee where we discuss these items we are also planning to provide training to the committee and board on the accounts