Agenda item

To consider a report by the Chief Officer Financial Services which seeks approval of the Council’s final audited Statement of Accounts following consideration of any material amendments identified by the Council or recommended by the auditors.

(Report attached)

The Chief Officer Financial Services submitted a report which presented progress towards approval of the Council’s final audited Statement of Accounts following consideration of any material amendments identified by the Council or recommended by the auditors.

Members were informed that the External Auditors (Grant Thornton) were nearing completion, and their findings to date were contained within the submitted draft of their ISA260 report. A further report covering the findings of their IT audit was also attached as an appendix.

The main points arising from the audit were that:

·  Grant Thornton anticipate being able to issue an unqualified opinion on the  2019/20 Statement of Accounts, with an Emphasis of Matter paragraph relating to the material uncertainty surrounding property asset valuations at 31st March 2020, arising from the impact of the Covid 19 pandemic on property markets;

·  There are expected to be no unadjusted audit differences affecting the financial statements;

·  The review of the Annual Governance Statement had concluded that it was not misleading or inconsistent with information they are aware of from their audit of the financial statements, and that it complied with CIPFA/SOLACE guidance;

·  Subject to completion of their audit work, Grant Thornton anticipate issuing an ‘except for’ opinion in relation to the use of resources - that the Council had made proper arrangements for securing economy, efficiency and effectiveness in its use of resources except for a weakness in the level of its General Fund Reserves to deal with significant unforeseen circumstances.

An updated copy of the accounts as at 13th November was included with this report.

Members were informed that the audit work had not sufficiently progressed in order for the Committee to approve the accounts. A final ISA260 report would be presented by Grant Thornton to the Committee at its meeting on 14^th December 2020.

The accounts would be certified by the Chief Finance Officer as a true and fair view of the Council’s financial position as at 31st March 2020 prior to the Committee being asked to approve them.

It was reported that during the 2019/20 public inspection period, no objections were received from local electors.

The Chief Officer Financial Services reported that the Council had identified a number of amendments since the draft accounts were published, and these were outlined to Members. The most significant was an amendment to the accounting treatment of a capital distribution which the Council had received from its investment in the Merrion House LLP. The capital distribution arose from the Council’s prepayment of rent for the remainder of its lease of Merrion House from the LLP. The Council were proposing that the balance of £25.65m shown as deferred income in its draft accounts would be recognised as revenue income and transferred to an earmarked reserve, to be applied during the remaining life of the Council’s lease It was noted that Grant Thornton wished to consider whether this should be an adjustment to 2018/19 figures.

Addressing the External Auditors report, Gareth Mills (Grant Thornton) spoke on the main issues which included:

Covid-19 – Members were informed the outbreak of the coronavirus pandemic had had a significant impact on the normal operations of the Council from March 2020 resulting in significant financial challenges as the Council responded to the pandemic.

Mr Mills explained that Authorities were still required to prepare financial statements in accordance with the relevant accounting standards and the Code of Audit Practice, deadlines for preparation of the financial statements had been extended up to 31 August 2020 and the date for audited financial statements to 30 November 2020.

It was reported by Grant Thornton that the following adjustments to the financial statements had been identified:

·  Pension Fund Liability - an increase in the Council’s pension fund liabilities of £9.73m resulting from the impact of the Goodwin judgement

·  Classification - £60m of Short Term Investments to correctly be classified as Cash Equivalents

·  Grants Receipts in Advance – currently included in Creditors but should properly be disclosed separately as Grant Receipts in Advance

·  Merrion House – a Prior Period Adjustment (PPA) is currently been considered for the proposed change in treatment of the receipt of 50% of the advance rental prepayment as a distribution, and the accounting treatment for reducing the fair value of the Council’s holding in the LLP in the 2019-20 accounts.

Members were informed that the work was substantially complete, there were no matters of which required modification of the audit opinion (Appendix E of the submitted report) or material changes to the financial statements, subject to the outstanding matters listed on page 142 of the report.

Referring to the value for money arrangements, Mr Mills said the VFM risk assessment had been updated to document the auditors understanding of the authority’s arrangements to ensure critical business continuity in the current environment. The VFM risks identified at the planning stage of the audit were the Council’s Financial Standing and preparations for Brexit. No new VFM risks in relation to Covid-19 had been identified.

Grant Thornton reported on the weaknesses in the level of the Council’s General Fund reserves to deal with significant unforeseen circumstances such as the COVID-19 pandemic. Except for this Members noted Grant Thornton are anticipating issuing an “except for” value for money conclusion that the Council has proper arrangements for securing economy, efficiency and effectiveness in its use of resources.

Members noted that the auditors had not exercised any additional statutory powers or duties.

Commenting on the implications of covid-19, Members queried if there was sufficient monitoring of the Council’s finances given that costs continued to increase, but there was very little or no income.

The Chief Officer Financial Services said the monitoring of the Council’s finances was a high priority with reports being presented to the Executive Board on a monthly basis.

Members made reference to the asset/ valuation for Merrion House and the ongoing lease, and queried how the prepayment of rent had been funded.

The Chief Officer Financial Services said that the prepayment had been funded from the strength of the Council’s balance sheet as it was not a capital transaction. A financial evaluation had been carried out to confirm that the savings from the reduced total rent were expected to outweigh the interest costs the Council incurred as a result of its reduced level of balances. .

Reference was made to Heritage assets with Members querying if such assets could be disposed of.

Members were informed that there had been no recent disposal of heritage assets, there may also be restrictions preventing the disposal of assets which had been bequeathed/ given to the city.

Members noted both Grant Thornton’s comments about working papers and the Council’s response that the Finance team would liaise with Grant Thornton to ensure that the nature and scope of working papers requested could be confirmed in good time in advance of future audits.

Members noted that Grant Thornton intended to propose additional audit fee variations. Whilst acknowledging that this was a matter for the Chief Finance Officer to agree with Grant Thornton, Members expressed their concerns, and in particular that taxpayers should not bear additional costs as a result of the general difficulties of carrying out audit work during the pandemic.

The Chair thanked officers and the representatives from Grant Thornton for their attendance and contributions.

RESOLVED –

(i)  To receive the draft report of the Council’s external auditors on the 2019/20 accounts noting that there are expected to be no unadjusted audit differences to the accounts.

(ii)  To defer approval of the final audited accounts until the December meeting of the Committee.

(iii)  To note Grant Thornton’s anticipated conclusion on the use of resources, and their associated recommendations in relation to the Council’s ability to deliver a balanced outturn position for 2020/21 and a realistic budget for 2021/22.