Agenda item

This item was taken before item 5.

Officers introduced the external audit update.

The Committee were reminded that the 2022/23 accounts were disclaimed. 2023/24 accounts were also to be disclaimed. As at 28 February only 77 opinions on Council or public sectors accounts had been issued out of 459. Only 1% of the prior year accounts were audited on time. This was a sector wide issue. Officers recognised the need to improve the capability and capacity to deal with preparing working papers. Runover from the 2022/23 disclaimed accounts had a knock on effect on the 2023/24 accounts. CIPFA were due to be engaged with as part of a finance improvement programme. Members asked about the engagement with CIPFA. A contract would be signed quickly to allow CIPFA to meet with key officers and Members. The complexity of local authority accounts continued to grow and there were more requirements on external auditors.

Officers had issued the new set of accounts in June, without the annual governance statement as this had not been signed off by Members or the Leader of the Council at that point. Officers had previously aimed to have the accounts disclaimed and signed off by the 28 February. This was going to be pushed back to 13 March because of a statutory scrutiny period.

Key adjustments had been made around valuations, including an error by valuers on Ruislip Golf Course (officers had corrected for this) and difficulties in valuing school assets. Changes included a £3 million debtors/ creditors issue relating to the DSG, a roughly £2 million difference in earmarked reserves, and a £7.5 million reduction in capital receipts reserves. Future complexities included IFRS 16 and improving the quality of working papers for external audits.

Before the Committee this evening were the provisional audit results report for the 2023/24 financial year. EY’s audit was complete. This audit had been a challenging process which was linked to the 2022/23 position, and also to turnover in officers. EY noted that there were good and positive relationships with the finance team. EY also thanked the finance team for supporting their work. EY intended to issue a disclaimed opinion on the 2023/24 financial statements, linked to the disclaimer on the 2022/23 financial statements. Appendix 1 of the report set out the areas that EY had been unable to complete as part of the 2023/24 audit. The Council had not run a compliant inspection period, which had to be rerun, expiring in March. EY would look to complete their reporting and issue an opinion on the financial statements in March. This meant that the Council will not have met the legislative backstop date of 28 February.

Two significant weaknesses were identified: financial reporting and financial sustainability. The Council's financial sustainability was at risk due to the growing schools deficit and the need for robust forecasting.

Weaknesses in the Council’s arrangements for financial sustainability and the quality of data were highlighted. Recommendations were made to address these, including improving the quality of data and ensuring robust financial forecasting. The Chair asked if EY believed that the quality of data had declined dramatically from the previous year to 2023/24 or more gradually. EY noted that it had been more gradual. It concerned bringing data up to date.

Officers explained the Council’s negative DSG balances, whereby the Council had spent more supporting children than it received through the grant. 91 Councils had such negative balances due to high needs. The government had allowed these negative balances not to impact the Council's ability to fund other services. The statutory override was due to cease in a year’s time, but officers expected it to be extended and national solutions to come forward. Government had introduced the safety valve agreement to help Councils lower their deficits via grants, but the Council's safety valve grant had been paused pending further information. Discussions were ongoing with the DfE. Officers noted that the Office for Budget Responsibility recognised that there needed to be a national solution. The funding provided to local authorities for special educational needs had not been sufficient.

Members asked about the impact of the safety valve suspension on the Council's services and budget. Efforts were ongoing to reduce the deficit, and discussions were ongoing with the DfE.

The Chair noted that there had been an expectation to complete by the backstop date and asked why this had not occurred. It was noted that a prioritisation piece was being conducted as not all of the work would be completed. In this regard, the audit did not complete. Extra resources were put on to the audit in order to maximise the amount of work completed by the backstop date.

Members asked how much money was received at the start of the safety valve agreement, and if this would be backdated. Officers noted that there was an expectation that it would be backdated. Officers would confirm the exact figure owed. It was noted that the Council was putting in £4million a year towards this out of capitalisation receipts, subject to MHCLGs agreement.

Members asked about repeated issues in valuations year on year. EY noted that the challenge related to assurance over external valuations. Ruislip Golf Course was a good example, valued at around £3million in the previous year and £18million this year. There was a control recommendation in the report about this. This was also related to data quality.

EY presented their pension fund audit plan to the April Committee, and the audit had been carried out in accordance with that plan, with one difference which related to the updating of materiality based on the year end accounts.

The audit was substantially complete. Three larger differences had been identified.

The first related to updating investment asset valuations. This was where more up to date fund manager reports came in after the production of the financial statements. This was a standard timing difference.

The second related to the recording of investment income where there was an unidentified error and so did not match the fund manager valuation.

The third related to a new investment with Blackstone which was incorrectly disclosed as level 2 and should have been level 3.

The Chair noted a line in the report that read “If we are not satisfied with the Council’s response to our recommendations, or the implementation of that response, we will consider exercising our further powers by making formal statutory recommendations” and asked what this meant. EY noted that as an appointed external auditor, there were a number of statutory powers which are available to them. This included the public interest report or the making of statutory recommendations. Given the significance of the financial challenges facing the authority, then EY will consider the degree of progress, and the pace of progress made. Statutory recommendations would place specific obligations on the authority.

It was reiterated that there was a good relationship with EY.

RESOLVED: That the Audit Committee:

1. Noted the position regarding the audit of the 2023/24 Statement of Accounts and delegated authority to the Corporate Director of Finance (in consultation with the Chair and incorporating any views from other Members of the Audit Committee) to approve the final 2023/24 Statement of Accounts and Audit Results Report on behalf of the Committee and to report back to the next Audit Committee meeting on these matters for ratification; and

2. Noted the Hillingdon Pension Fund draft Audit Results Report.