Agenda item

External Audit Progress Report

To receive a progress report.

External Audit Progress Report

The report provided Members with progress in delivering the 2020/21 audit and assurance work, and a summary of recent relevant reports and publications for information.  (A copy of the report has been filed with the signed minutes).

C. Waddell, Mazars reported that there were three pieces of assurance work that had been carried out in terms of grant claims for 2020/21.  The work around teachers’ pension returns had been completed in November with no issues arising.  The pooling of housing capital receipts return had been completed in February with no issues arising.  The third piece of work was around housing benefits subsidy return where External Audit worked closely with the Council and the DWP.  This piece of work was nearly complete although some errors had been found resulting in another sample needing to be taken.  External Audit was working with the Council to complete this work before it was reported off to DWP, hopefully by the end of the month.  Members were reassured that it was not uncommon to find errors in benefits claims. 

In terms of the accounts there were a few key areas arising.  Following some issues last year on the property plant equipment valuations the sample pool had been extended.  More work was being carried out this year, but some additional errors had been found which needed to be addressed.  External Audit was working with officers on this to understand the implications, but it was believed that there probably would be a material correction needed to the accounts, possibly in a prior year.  This was because some of the valuations were out of date by some distance. 

Regarding pensions, as previously highlighted, the Council had obtained a revised pensions report from the Actuary, resulting in a decrease to the net pensions' liability of £44 million.  

The work on infrastructure was the result of the Council’s follow-up of an issue identified during the 2019/20 audit and an internal control recommendation was raised.  Following this a more written branch review of the asset register had been requested.  The Council was carrying out further work to confirm that the infrastructure and asset values were now complete following a number being written off in the previous financial year.  External Audit’s work was on-going in this area.  It was reported that this was linked to a national issue regarding the way in which infrastructure assets were recorded across all parts of the country. 

An update on the Group Accounts was provided.  Members were informed that last year there was a claim in relation to Farrans and a payment made within the last 12 months which had been reflected in Advance Northumberland’s Accounts.  External Audit had spent time seeking Advance Northumberland’s views on the probability of having to pay out for this claim.  The view of External Audit was that the principles of Article 37 had not been met in terms of the need to make provision in the accounts.  Discussions were still taking place regarding if contingent liability may or may not be appropriate.  It was thought that this provision could potentially be taken out of the accounts, but this would increase Advance Northumberland's P&L reserve as well as the Groups.

Also, within Advance Northumberland's accounts Council officers had identified an error regarding the revaluation reserve which had resulted in a miscalculation of the Council’s Group Accounts.  It was stated that this was due to an increase in the valuation of assets held by Advance Northumberland.   Officers were working together to see how this should be accounted for, but it would probably result in an increase in the Groups usable reserves of around £60 million.  It was advised that this would be a non-distributable reserve. 

Under value for money the SOLACE review was still underway.  Any matters arising from the review would be reflected in the External Audit’s work on this.   The Annual Governance Statement would also be informed by any outcomes of the SOLACE review before being confirmed.  

Councillor Oliver thanked officers from Advance Northumberland and the Council for their work in resolving the Farrans issue with the amount paid being significantly lower than initially thought.  In response it was confirmed that the Farrans claim was still ongoing.  It was the view of External Audit that there was still a risk.  However, based on evidence provided this was improbable resulting in the accounts showing an ongoing claim but there would be no need to recognise this within the balance sheet.

Councillor Oliver queried whether the revaluation reserve error in Advance Northumberland would impact on their corporation tax.  In response External Audit confirmed that this would be better addressed to the Interim Director of Finance and Section 151 Officer.

Councillor Oliver asked when the Value for Money Statement for 2019/20 was to be completed.  In response it was stated that once all issues had been resolved for that year it would be concluded.  However, it was looking like there would be a qualified Value for Money conclusion for 2019/20.    It would then go through a second partner review and then through Mazars Central Technical Quality Team to ensure everyone was in agreement with the wording and evidence gathered to reach the decisions made.  This could all take some time.  In terms of 2020/21 Value for Money this would depend on any outcomes arising from the SOLACE review.  If any significant weaknesses were identified, then appropriate actions would need to be taken before conclusions reached.  In terms of getting back on track with the timetable for publishing audited accounts it was noted that the deadline had been pushed back to November after only 9% of Government bodies had been signed off by the timetabled deadline last year.   The External Auditor stated that it was too early to confirm if the financial statements would be signed off by this year’s deadline.

RESOLVED that the report and comments made be noted.