Agenda item

To consider the report of the Council’s External Auditor.

Geraldine Daly, Key Audit Partner from Grant Thornton, presented the External Auditors interim findings report, informing Members that the audit began in August 2019 following a delay caused by resource issues and that the report provided key messages that the Audit and Governance Members would need to know.

Members were referred to the report, where it was noted that there were a number of audit adjustments that had been agreed with officers and that recommendations based on the audit work had been raised, which would not be adjusted.

Geraldine Daly discussed the value for money arrangements at Exeter City Council, which were considered to have satisfactory arrangements and that the procurement issues were no longer a concern and could be removed. She commented on the group accounts and materiality level, highlighting that it would be £1,950,000 for the group amount and £1,800,000 for the Council amount. Materiality for the Council had been set at 1.8% of the prior year’s gross expenditure and it was required that group accounts are prepared, in which the same 1.8% was applied.

Members were referred to the significant audit risk findings and noted that the improper revenue recognition and risk of fraud was not considered to be a significant risk, with there being little incentive for staff to engage in such activity. Issues had been identified with the Management override controls, which would be disclosed at the conclusion of the audit work. No issues had been raise on the land and buildings valuation, and any risks related to price changes in commercial properties across a financial year and how the market was assessed.

The Chief Finance Officer and Geraldine Daly discussed the valuation of the pension fund net liability, which had initially been identified as a significant risk based on the £114 million deficit in the Authority’s balance sheet at 31 March 2018. However, audit work since this time had not identified any issues, but discussions with officers would be ongoing.

Members were provided an overview on the potential impact from the McCloud court appeal, which had ruled on age discrimination in judge and firefighter pension schemes and could potentially increase the pension liabilities by £1.629 million and result in an increase in service costs of £132,000 for the 2019/20 year. Officers considered that the ruling was not material for Exeter City Council and would be considered for future years’ actuarial valuations. Grant Thornton, who had an obligation to report anything over £50,000, had suggested that the accounts be amended to include the £1.629 million. The Chief Finance Officer explained that the decision had occurred after the accounts had been completed, but the outcome would not impact the tax payer. The £1.629 million figure equated to a change of 0.7% and would not affect the General Fund reserves, however a disclosure note would be added to the Statement of Accounts. A letter of representation would be issued at the end of the audit process to be signed by the Audit and Governance Committee

Members were informed that the liability was controlled by regulations set by Central Government, and when the new regulations come into effect, more information could be disclosed.

Should the amount of errors identified in the accounts go over £1.8 million then an adjustment to the accounts would be made. The Chief Finance Officer confirmed that most other Local Authorities were in the same situation and had not adjusted accounts at this time. He considered that the figure did not warrant a change at this time and should there be any further issues in the future, the accounts would be amended accordingly. Members were satisfied with this recommendation.

Geraldine Daly highlighted the prior period adjustment which was below the level set for  material amounts, was in Grant Thornton’s view unnecessary and the Council did not need to make an  adjustment following an error identified in the 2018/19 financial statements relating to a home improvement loan as it  was not a material amount. The Chief Finance Officer stated that it was a matter relating to money that was owed to the Council under the IFRS 9 and was unable to get back. As this impacted on money owed to the Council he felt it appropriate to provide the adjustment on significance grounds, whilst acknowledging the fact that it was below the monetary value of materiality.  To avoid any impact on how the accounts were read by the public, he would amend the Management response in the report to provide a clearer explanation.

Geraldine Daly provided an overview on value for money and procurement follow up work, which was considered to be adequate, but had made a recommendation to develop an action plan against which progress and remedial action could be taken.

In response to Members’ questions, the Chief Finance Officer and Geraldine Daly explained

·         The term ‘adjustment’ used in the report referred to financial adjustments;

·         The valuation of land and buildings, was the land, buildings, plant and equipment owned by the Council. The owned buildings that were commercially leased were re-valued each year;

·         There were no concerns for democratic accountability in the governance arrangements for Exeter City Group Limited;

·         Grant Thornton were required to remain independent for their audit work and were required to demonstrate this in the report with their fees for transparency;

·         The report was marked as ‘draft’ until it was presented to the Audit and Governance Committee, where it would then be the final version.

·         Recommendations on the pension liability would be brought back to Members once they had been completed.

Members thanked the external auditor and requested that the external audit report be provided to Members sooner.

The Audit and Governance Committee noted the External Auditors interim findings report.