Agenda item

Report by the Chief Finance Officer.

39.1     Marcus Ward, Grant Thornton, introduced report. The key matters impacting the audit are summarised on page 4 of the Audit Plan (page 16 of the agenda pack) and more details are available on subsequent pages of the Plan.

Significant Risks

39.2     A risk assessment has been carried out to identify the significant risks that may affect the ability to provide an accurate audit (pages 6-8 of the Audit Plan). The first two risks (page 6) are ones that have to be included in the audit, which are the management over-ride of controls and the risk that revenue includes fraudulent transactions.

39.3     The Auditors have partly rebutted the risk of fraudulent recognition of revenue, as a large part of the Council’s income comes from Council Tax which is collected on behalf of the Council. The audit will however include an examination of revenue from fees and charges. The management override of controls is the key risk and the Auditors will look at journals and management estimates as part of their work on this part of the audit.

39.4     The other key risks identified are:

• Valuation of property, plant and equipment. Work in this area will examine whether the valuations are accurate, including the assessment and judgements used in arriving at a valuation.
• Valuation of the Pension Fund net liability, which represents a large sum in the accounts. Work will examine the actuarial valuations and the basis of assumptions used in the actuarial valuations.
• Private Finance Initiative (PFI) liabilities. The audit will examine the PFI contracts that the Council has for Waste Disposal and Newhaven schools. Work undertaken will examine the PFI accounting models used to test their accuracy and assess liabilities.

Other Matters

39.5     The Other Matters included in the audit are listed on page 9 of the Audit Plan. This work includes:

• Examining the Council’s Annual Governance Statement (AGS) and the financial statements to test that they are accurate and make sure the accounts accurately reflect what is happening in the Council;
• Considering elector objections if there are any; and
• Work to examine management’s assessment of the ‘going concern’ assumptions.

Materiality and Value for Money (VFM) arrangements

39.6     The level of materiality is derived from the gross revenue figure for the Council and is set at £20million. The Auditors will also report any incorrect statements over £1million. The audit will provide a Value for Money (VFM) statement, which includes an examination of identified VFM risks:

• Ongoing financial sustainability – which will look at the Council’s Medium Term Financial Plan (MTFP) and the Core Offer. This work will involve examining financial statements and talking to management.
• Partnership working with the NHS; and
• Brexit.

39.7     Marcus Ward outlined the timeframe for the audit which will provide the Audit Findings report to the Audit Committee in July 2019, and confirmed the independence of the Auditors.

39.8     The Committee discussed the content of the Audit Plan and asked questions or sought clarification on a number of points. It was clarified that the audit does not specifically look at reputational risk, but would report on matters if there was a significant governance weakness and decisions were not taken properly.  In addition, if it was found that the Council is not delivering statutory services, this would be brought to the Committee’s attention.

39.9     The Committee asked if the Auditors will need more Officer time as this is the first year they have audited the Council’s accounts, and to understand the Council’s relationship with the NHS. The Committee commented that the ageing and relatively poor population and the demographics of East Sussex, are not typical of other local authorities and may put additional strains on Adult Social Care and indirectly the NHS.

39.10   Marcus Ward outlined that the Auditors have already undertaken work to develop working relationships with the Finance Team. They have reviewed previous audit work and discussed this with the previous auditors to fully understand the Council’s financial position. As much prior work as possible has been undertaken with the Finance Team, with audit testing already being undertaken on transactional activity for the first 10 months of the year.

39.11   The Chief Finance Officer added that Officers have recognised that more work may be required in the first year, with the Finance Team investing time in order to ensure Grant Thornton has all the information they need to carry out the audit.

39.12   The Committee raised the issue of ongoing financial sustainability which forms part of the VFM assessment, and asked whether this is something that requires ongoing monitoring. It noted that financial sustainability may not be a significant risk this year, due to one-off funding, but will represent more of a risk in future years.

39.13   Marcus Ward outlined that Grant Thornton will formally report on financial sustainability in the Audit Findings report. The Auditors view the assessment of this risk as a continuous process and have already been looking at this issue. The Auditors will continue to monitor financial sustainability and will highlight any concerns to the Committee. The Chief Finance Officer added that the financial sustainability risk will continue to be included in regular reporting throughout the year, through the Audit Committee and Council monitoring reports.

39.14   The Committee RESOLVED to endorse the External Audit Plan for 2018/19.