To consider a report by the Chief Officer Financial Services which seeks approval of the 2020/21 Statement of Accounts and Grant Thornton Audit Report.
(Report attached, Appendix No.2 (ISA260 Audit report) to follow)
The Statement of Accounts will be circulated as a separate document
The Chief Officer Financial Services submitted a report which sought approval of the Council’s final Statement of Accounts and to consider any material amendments identified by the Council or recommended by the auditors.
Members were informed that Grant Thornton’s audit of the final accounts was nearing completion, and an interim report of their findings had been circulated separately. The main points included in the report were:
· Subject to completion of their remaining audit work, Grant Thornton anticipate being able to issue an unqualified opinion on the 2020/21 Statement of Accounts,
· There are expected to be no material unadjusted audit differences affecting the financial statements;
· An updated copy of the statement of accounts was published with this report. 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 2021 prior to the Chair of the Committee being asked to certify them.
The Head of Finance reported that a number of amendments had been made to the Statement of Account following publication of the report to Committee and were detailed as follows:
· Pension Assets – The Council had received confirmation from the West Yorkshire Pension Fund that the increase to its share of the WYPF assets has increased by £42.8 m rather than the estimated adjustment of £32.5m. There would therefore be a further decrease of £10.3m in net pensions liabilities, with a corresponding change to the Pensions reserve
· Business Rates – The Council has re-assessed its appeals provision for business rates following clarification by the government limiting the ability for claims for a material change in circumstances due to covid. The bad debt position for business rates has also been reviewed in light of the better than expected collection rates during 2021/22. A revised NNDR3 form for 2020/21 was submitted to the government on 31st January. The impacts on the Statement of Accounts would be:
(i) A reduction of £3.7m in the Council’s share of the appeals provision
(ii) A reduction of £5.9m in the Council’s share of the bad debt provision
(iii) A reduction of £9m in the Council’s share of the deficit carried forward on the Collection Fund
(iv) An increase of £9m in the business rates income recognised in the Income and Expenditure account
(v) A reduction of £5.5m in the accrued Taxation Income Guarantee grant, with a corresponding reduction in earmarked reserves
(vi) An increase of £750k in the levy payable to the regional business rates pool, with a corresponding reduction in revenue reserves
Members were informed that a report would be brought back to Committee if any material considerations requiring amendments to the accounts were to arise during Grant Thornton’s remaining audit work, and therefore Committee were asked to confirm a course of action which would enable the Chair to sign off the accounts when complete if no such issues arose. Further, the Chief Officer Financial Services was not currently aware of anything to prevent the management representation letter from being signed at the appropriate time subject to further discussions.
The Chair then invited Gareth Mills, External Auditors (Grant Thornton) to address the Committee on the Audit findings (IAS260) Report for Leeds City Council
Mr Mills explained that there were three elements to the audit process for 2020/21 – the audit of the accounts, the audit of WGA (Whole Government of Accounts) returns, and the value for money audit. Whilst the audit of the accounts was nearly complete further work was required around value for money (VFM) and that this would be included within Grant Thornton’s Auditor’s Annual Report. He said work continued to progress, but it was anticipated that a further 3 months would be required (April 2022) before the VFM work was concluded. It was not yet known when government guidance would be issued to enable auditors to carry out WGA audit work for 2020/21.
The Committee then heard from Perminder Sethi (Grant Thornton) who provided further details of the audit findings
Commenting on the ISA260 report, Members asked that a glossary could be provided to clarify definitions of abbreviations.
Members were informed that the report would be updated, and abbreviations would be made clearer. (The abbreviation PPE referred to a fixed asset, i.e. property, plant & equipment)
Reference was made to the Council’s MRP Annuity method for paying of debt. It was confirmed that this method was one of the options recommended in the government’s statutory guidance. It was suggested that the repayment of debt could be pushed into future years, that may then reduce the ability to spend in future This was contrasted with an alternative approach, front loading the MRP costs which would definitely impact on spending capacity in the short term. It was noted that there is a need to take account of political pressures that Members are elected to address.
Mr Sethi informed Members that the key issue was whether an informed decision had been made based on all the information available and that the value for money audit would look for evidence that a considered decision had been made.
The Chief Officer Financial Services, noted that there are two elements to consider: repayment and interest, and that the annuity approach aimed to ensure that the overall cost of debt, i.e. the interest plus the repayment, was spread evenly across the period that benefit was derived from the capital expenditure. Members were informed that the majority of authorities use the annuity model, which had been confirmed as appropriate by statutory guidance.
Members referred to the valuation of the Temple Green Park and Ride scheme which was assessed as a one-off error (included incorrectly in the land and building valuation of phase 2 resulting in the valuation being overstated). Members asked how was this different to others, to demonstrate that it was “just a one-off error”.
Members were informed that the Park and Ride scheme was a large and unusual scheme covering a complicated site with multiple phases, even unique, and there was nothing else similar where this particular error could have occurred which could attract a review .
Reference was made to the West Yorkshire Pension Fund asset revaluations, Members querying if they were revaluations or corrections, also was it time date stamped and were LCC looking for preferential market price
In responding the Head of Finance explained that valuations were carried out by the West Yorkshire Pension Fund and were then fed into actuaries’ calculations and then into LCC accounts. Members were informed that revised valuations were based on information received subsequent to those in the draft accounts and were in relation to unquoted investments held by the Fund. The revised valuations had been audited by the WYPF’s auditors. All valuations were as at 31st March.
Members asked whether there were any significant audit risks in the work remaining to be undertaken which could give the external auditor significant cause for concern.
In responding Mr Mills said testing to date had revealed no material issues. On the issue of work on journals, Mr Mills said that past experience suggested that chances of material misstatement were not high.
The Chair thanked officers and representatives of Grant Thornton for their attendance and contributions
(i) To receive the audit report of the Council’s external auditors on the 2020/21 accounts and to note that there are expected to be no unadjusted audit differences to the accounts.
(ii) To receive and consider the updated 2020/21 Statement of Accounts, and to approve these as the Council’s final audited accounts subject to no issues requiring further material adjustment arising as a result of Grant Thornton’s remaining audit work. The Committee is further asked to authorise the Chair to approve any additional non-material amendments which may be recommended by the Chief Finance Officer, and, once the audit is complete, to acknowledge this approval on behalf of the Committee by signing the appropriate section within the Statement of Responsibilities on page 1 of the accounts.
(iii) To note that, should any material adjustments arise as a result of Grant Thornton’s remaining audit work, a final version of the Statement of Accounts will be presented for approval at the next meeting of the Committee, prior to their publication.
(iv) On the basis of the assurances received, the Chair is asked to sign the management representation letter on behalf of the Corporate Governance and Audit Committee (at the appropriate time subject to further discussions).