Agenda item

Consideration was given to a report which sought approval of the Council’s audited Statement of Account 2021/22 and Annual Governance Statement for 2021/22, as attached to the Appendix to the report and the key issues that the Committee should consider before the External Auditor issued their opinion on the financial statements.

The Chair on behalf of the Committee thanked Grant Thornton and Officers in the Finance Team for completing the accounts in challenging circumstances. The Assistant Director of Finance responded by commending Grant Thornton and the Finance Team for their achievements in getting the accounts to the current position in view of the significant work undertaken.

Grant Thornton presented the ISA 260 report, detailing the key aspects of the External Auditors work for the 2021/22 audit of the Statement of Accounts. Perminder Sethi, Engagement Senior Manager, highlighted the key headlines from the executive summary and summarised the areas for the Committee to note.

It was noted that the audit was nearing completion, and there were no matters that required modification of the proposed audit opinion or material changes to the financial statements, subject to the completion of outstanding matters in respect of Pension fund assets and liabilities and publication of the Statutory Instrument from the Department for Levelling Up, Housing and Communities (DLUHC) on the statutory override for the accounting arrangements relating to infrastructure assets, as detailed on pages 3 and 4 of the ISO 260 report. 

No new risks or issues had been identified during the audit, however Grant Thornton had raised one audit recommendation for management arising from the audit in relation to the Council’s asset register for vehicles, plant and equipment, where a large number of assets had been fully depreciated and had shown a Net Book Value of zero, but still remained in the asset register, as detailed in the Action Plan at Appendix A.  The follow up recommendations from the previous year were also detailed at Appendix B.

It was anticipated that Grant Thornton would conclude the audit by the end of November in line with the statutory target and would give an unqualified opinion, however this was dependent upon the national infrastructure accounting issue across the sector being resolved via the issuing of a statutory instrument from the DLUHC.  The timing of the Statutory Instrument was hoped to be around 30 November to coincide with the statutory date, however the exact publication date was unclear and an unqualified audit opinion would not be issued until that time.

In relation to Value for Money (VFM) conclusion, due to the ongoing challenges impacting on the local audit market, including the need to meet regulatory and other professional requirements, Grant Thornton had been unable to complete its work as quickly as would normally be expected, therefore had not yet issued its Annual report and arrangements for value for money. It was anticipated that this would be issued by 26 January 2023 for submission to the Audit Committee, which would also be ahead of the National Audit Office’s revised deadline for completion for issuing the Auditor’s Annual report (3 months after the date of the opinion on the financial statements).  An audit letter explaining the reasons for the delay was attached to the report at Appendix G. However, it was noted that no significant VFM weaknesses in the Authority’s arrangements had been identified to date.

In response to questions from Councillor Glen Bluff seeking clarity regarding the Council’s approach and treatment in relation to the capitalisation of the lifetime of Council assets in respect of IT development and projects, it was noted that assets such as major ICT projects were treated as capital expenditure and formed part of the Capital Programme. The Council’s accounting policy in terms of the capitalisation of ICT assets i.e. software projects was broadly based on a period of 5 to 7 years, and was subject to the requisite criteria in the policy being met and the endurance and nature of the application.  The Director of Corporate Resources explained that ICT projects and software applications that exceeded the threshold, would be reviewed and re-procurement of the applications. 

Perminder Sethi from an audit perspective, explained how the External Auditor as part of their work in looking at the capital programme spend during the year, would look at the Council’s treatment of the capitalisation of assets by selecting a sample of those assets, for example ICT projects, to determine whether the sample complied with the Council’s policy on the capitalisation of assets. In response to a question regarding as to whether capitalisation of assets had been defined correctly, it was clarified that the External Auditor would look at the Council’s Policy regarding the capitalisation of assets to determine whether the Council where compliant with the Policy and highlighted that any matters of concern would be brought to the attention of management. He explained that clear guidance was in place in respect of how capitalisation of assets where to be treated.  The External Auditor confirmed that to date they had not identified any issues of this nature from the work undertaken. The Director of Corporate Resources further advised that the Council’s external Valuer as part of its work would not bring a matter relating to the capitalisation of assets to the attention of the External Auditor. She assured Members that procedures were in place to deal with such matters and that the Customer, Digital and ICT team were aware of the regulations in place and their responsibilities under the regulations. In terms of materiality, the External Auditor added that if the asset was not of significance, would therefore, not be identified by External Audit as a risk.

Following further question from Councillor Bluff, the Director of Corporate Resources confirmed that as the Council services moved away from legacy ICT systems on to a Cloud based system, the Council’s policy regarding the capitalisation of assets would change and highlighted the challenges of an a Cloud based system in terms of financing the project and Council resources.

In response to a further questions regarding ransomware attacks and whether the Council had taken steps to insurance against ransomware attacks, the External Auditor confirmed that as part of their ICT control work, External Audit looks at the Council arrangements in relation to cyber-attacks, particularly in view of the recent attacks taking place in recent years, which was also part of Internal Audits work. In relation to the provision of ransomware insurance, the Assistant Director of Finance advised that the Council had carried out a cyber-assessment, however she explained the difficulties in getting specific insurance due to what was available in the market. However, Members were informed that the pre-assessment exercise had been useful in ensuring that the Council’s current arrangements were sufficient.  In recognising the challenges faced by cyber-attacks, the Council as part of the budget setting process had established a dedicated cyber security team within the Council’s ICT department.

In answer to a question from the Chair, the External Auditor reiterated that Grant Thornton was aiming to complete their work and issue a report their Annual report to the Committee’s meeting on 26th January 2023.

Further to clarity being sought by the Chair, the Director of Corporate Resources made reference to the diagram on page 18 of the agenda papers, which set out the statutory officers and mechanisms in place for formally signing off natters from the Annual Governance Statement.

RESOLVED that

(1)       the contents of the draft external audit ISA 260 report be noted;

(2)      the contents of the Letter of Representation as attached as Appendix F in the draft ISA 260 report, be endorsed for signature by the Chair of the Audit Committee and the Chief Financial Officer;

(3)      the Statement of Accounts 2021/22 for the year ending 31st March 2022, as appended to the report, be approved;

(4)      the Annual Governance Statement 2021/22, as attached as an Appendix to the report, be approved for signature by the Mayor and the Chief Executive; and

(5)      authority be delegated to the Chief Financial Officer, in consultation with the Chair, to agree any adjustments to the Statement of Accounts 2021/22, following the completion of the audit by Grant Thornton, should any changes be necessary, prior to signing by the Chief Financial Officer and the Chair of the Audit Committee.