Agenda item

Stephen Clark, Ernst & Young referred Members to the Executive Summary in the draft audit results report, specifically to the changes in materiality and adjustments and reporting an extension to the scope of the work regarding pensions following the McCloud judgement and the impact of Guaranteed Minimum Pensions. The effect was summarised in the Audit Differences on page 243 of the papers. He stated that he hoped to be able to sign off the Accounts by close of play on 31 July 2019.

Turning to the areas of Audit Focus, Ernst & Young had completed their audit regarding Capital Receipts Flexibility and had no concerns.  The auditors had no concerns regarding Misstatements due to Fraud or Error. In respect of Valuation of Land and Buildings, there had been some challenges last year regarding schools’ recognition assets.  This has led to a prior adjustment this year.

In regard to Pension Liability Valuation, this continued to be an area of Audit Focus. Ernst & Young were happy with the local authority’s adjustments which showed a relatively large movement of £23,443m.  There were two financial reporting standards, IFRS 9 – Financial instruments and IFRS 15 – Revenue contracts with customers.  Ernst & Young were happy with the Council’s assessment in respect of both standards.  In regard to the Accounting for the PFI scheme – there were no adjustments to report.

Moving on to Audit Differences, Ernst & Young were happy with the adjustments made, and the number of minor disclosure adjustment changes.  There was one adjustment that the Council had not made of £1.3m in respect of a buildings’ valuation. Ernst & Young were happy that this was not material and that no adjustment had been made.

In regard to Value for Money Risks, three key risks had been identified by the external auditors. 

Ernst & Young were satisfied that the Council had put in place adequate arrangements in place to address the risks in regard to the MTFS. 

In relation to working with partners and third parties, the external auditors had concluded that they were satisfied with the establishment of Nexxus Care to deliver reablement, provider of last resort and home care services. 

However, the Council had received a joint Ofsted and CQC report in January 2019 on SEND service provision.  The external auditors acknowledged the work being done to address the significant weaknesses identified in the report but offered a qualified opinion in this area and hoped that this would be removed in due course. 

Ernst & Young concluded that they were happy with ‘Other reporting issues’ and continued to work with the County Treasurer and his team on the control environment to look to how these might be improved.

Members asked if the £25.4m reclassification adjustment referred to in the Audit Differences and the creditor and debtor value being increased by £1.05m should have been picked up by the Finance Team or external audit.  Ernst & Young explained that in ideal world this should have been the case, however the area of disposals was particularly challenging.  This related to the issue of disposals of schools’ assets referred to in last year’s report and a prior period adjustment had to be made and the auditors had to confirm that it had been done in the right period.

Members asked what the £1.3m buildings valuation related to and asked why it was not in the report.  Ernst & Young responded that there had been an error in the valuation basis.  The County Treasurer explained that this was as a result of human error in that the wrong index had been used to calculate the valuation. This was materially insignificant, and it had been decided not to adjust the figure.  He stated that he would ensure that this did not happen again.

Members raised concerns regarding the comments made in regard to partnership working and asked for Ernst & Young’s suggestions as to how the Council could ensure that proper governance arrangements and visibility was in place.  Ernst & Young stated that in regard to the joint Ofsted and CQC report regarding SEND, many other local authorities had received similar judgements and the way in which Ofsted and the CQC had based their inspections had changed, so schools could move from a judgement of ‘Outstanding’ to ‘Requires Improvement’ rapidly.  SEND partnership working was complicated in that it involved the local authority, Clinical Commissioning Groups and schools, some over which the authority had relatively little direct control, but for which the Council were still statutorily responsible.  His view was that the strength of the partnership depended on the strength of the partners.  He concluded that the external auditors had seen the SEND action plans and they seemed timely and appropriate.  The challenge would be bringing the partners to the table.

The Chairman thanked Ernst & Young for their report and the County Treasurer and his team for their efforts.

RESOLVED – That the report be approved.