Agenda item

Report by the Chief Finance Officer.

5.1       Jo Lees from the Council’s External Auditors, KPMG, introduced report.  She outlined that the External Auditor intended to issue an unqualified opinion on the accounts and value for money work. There are two significant risks that were identified and examined as part of the audit (as detailed on pages 9 and 10 of the External Auditor’s report in appendix 1 of the Governance Committee report – see appendix A). The first risk was the valuation of the Council’s pension assets and liabilities, because this is a key area of judgement. The Auditors found that there were no issues that they needed to draw attention to as a result of their work in this area.

5.2       The second risk included in the audit was the valuation of land and buildings. Again this is due to the judgement issues involved in the way the property portfolio is valued. The approach that ESCC’s professional valuer has adopted includes a contingency in the valuation. This is not wrong, but ESCC does not have to include a contingency. Consequently the Auditors have made a recommendation that the Council considers the appropriateness of this approach.

5.3       The Chief Finance Officer explained that the valuation method used to estimate the cost of rebuilding all the property assets includes a 5% contingency. There is a consultation being undertaken by the Royal Institute of Chartered Surveyors on whether a contingency has to be included, but the consultation has not concluded. ESCC has decided to include a contingency on the advice of the professional valuers, but once the consultation outcome is known, ESCC will act on the revised guidance and change its approach to the valuation accordingly.

5.4       Jo Lees outlined that there are two other risks that the Auditors have to include in their work. The fraud risk from revenue recognition has been rebutted as there is unlikely to be an incentive for local authorities to fraudulently recognise revenue. The other is the fraud risk from the management override of controls. The Auditors found there were no issues arising from this area of risk.

5.5       The Auditor’s view on management judgements (page 12 and 13 of the Auditor’s report) is that they are balanced and sound.  The Auditors concluded that the Authority has adequate arrangements to secure economy, efficiency and effectiveness in its use of resources and therefore anticipate issuing an unqualified value for money conclusion (as outlined in the Summary on page 4). Jo Lees confirmed the independence of the External Auditors.

5.6       The Chair asked the Auditors if they could clarify the meaning of the terms “unqualified opinion” and “true and fair” used in the report. Jo Lees explained that “unqualified” meant that the Auditors were not placing a qualification on the audit opinion (i.e. there are no issues). What is meant by “true and fair” is that the accounts are true and fair based on the evidence the Auditors have seen, and they have not been miss stated. Jo Lees also clarified that the Elector Objection related to last year’s accounts, where an objection was raised concerning Lender Option, Buyer Option (LOBO) loans.

5.7       The Committee did not have any concerns that they wished to bring to the attention of the Governance Committee on the independent Auditor’s report. The Chair thanked the Auditors, on behalf of the Committee, for their work on the Council’s accounts over the last five years.

5.8       The Committee RESOLVED to note report and its appendices.