Agenda item

Report of the Director of Finance

Report of the External Auditor (Grant Thornton)

The Committee considered a report of the Director of Finance, which sought approval for the audited 2019/20 Statement of Accounts and Grant Thornton’s Audit Findings report provided alongside the accounting statements. The Committee was approving these accounts on the Council's behalf. It followed an extension to the period of audit by Grant Thornton to 30th November in line with national regulation. The original deadline to complete and authorise the Statement of Accounts was 31st July, 2020. Copies of the Statement of Accounts and the Audit Findings report were attached as appendices to the report. The report had been circulated as an urgent item prior to the meeting, the reason for urgency being to enable the Council to publish the accounts by the end of November in line with existing regulations. Councillor Brown, Cabinet Member for Strategic Finance and Resources attended the meeting for the consideration of this item and spoke in support of the report. Mark Stocks and Avtar Sohal, Grant Thornton attended for the item. The Committee also received a detailed presentation from the Council’s Corporate Finance Manager on the Statement of Accounts.

2019/20 Statement of Accounts

The Committee were informed that the audit of the accounts was complete with very small number of exceptions. Reference was made to impact of the Covid pandemic, which had seen significant turmoil in audit activity nationally, much of it reflected in the Redmond Review. This included the capacity of auditors to deliver current scope and the nature of some accounts content.

The outturn position showed:

•  A balanced Outturn position after a contribution of £5.5m to reset and recovery reserve

•  Council revenue reserves increase from £82m to £90m but includes £8m of up-front Covid funding

•  Total reserves of £144m including schools and capital

•  The actual Covid impact on spending was minor (£2.9m including additional bad debt provision)

•  A Capital Programme of £216m

•  Significant projects across the city – Whitley South, Battery Industrialisation Centre, Station Masterplan, The Wave, Salt Lane

Major issues highlighted included the Covid impact on ability to reliably value property, investment and pension assets; the fact that pension liability remained as a significant matter; overall long-term borrowing fell (but short-term treasury borrowing in place); and the importance of the Council’s capital plans for the city. The Committee noted that the statutory environment and level of reserves left the Council in a sound financial position, however, the Covid continued to impact on the delivery of plans in 2020/21 and on balancing the financial position in 2021/22.

Regarding the financial accounts and management accounts, the two sets of accounts presented on two different bases: a £11m deficit on the Comprehensive Income & Expenditure Statement (CIES) verses a balanced outturn position.

Additional information was provided on reserve trends; the balance sheet; long term investments; pension liabilities; officer renumerations; and the contingent liabilities. The Committee were informed that Covid had not been identified specifically as an issue for these accounts; the City of Culture guarantee did not represent a significant financial risk given surrounding controls (but was subject to ongoing monitoring); and that Covid added to the mix of uncertainty surrounding local government finances.

Audit Findings Report

The Audit Findings Report made particular reference to the significant impact that the Covid 19 pandemic had had on the operations of the Group and the Council, with the Council implementing Government guidance and using alternative ways to deliver services. Local Authorities were still required to prepare financial statements in accordance with relevant accounting standards and the CIPFA Code of Practice, albeit to extended deadlines. The Audit Risk Assessment was updated to consider the impact of the pandemic and an Audit Plan Addendum was issued on 29th April, 2020. This reported on additional financial statement risk in respect of Covid-19 and the impact on the Value for Money approach. Restrictions for non-essential travel meant both Council and Audit staff had to carry out the financial statements away from the Council House.

In relation to the financial statement, the audit work was completed on site/ remotely during July to November. The auditor’s findings were summarised in the report. Adjustments had been identified in the financial statement that had resulted in adjustment to both this year and prior year balances. These adjustments were detailed in Appendix B to the report. The follow up of recommendations from the previous year’s Audit were detailed in Appendix A. The auditor’s work was substantially complete and there were no matters that would require modification of the audit opinion or material changes to the financial statements, subject to the following outstanding matters:

•  receipt of assurance confirmations from component auditors of Tom White Waste Limited and Coombe Abbey Park Limited

•  receipt of management representation letter; and

•  review of the final set of financial statements.

The auditor had concluded that the other information to be published with the financial statements was consistent with their knowledge of the City Council.

The anticipated audit report opinion would be unqualified including an Emphasis of Matter paragraph, highlighting:

PPE valuation material uncertainties – the valuer had indicated that due to Covid-19 that there were uncertainties in their valuation of land, buildings and investment properties

Pensions PPE valuation – the pension funds valuer had indicated that due to Covid-19 that there were uncertainties in their valuation of investment property.

The other key issues identified included:

•  The audit testing identified that there were some errors in the valuation of assets in 2018/19. The Council had made prior period adjustments which would result in the increase of Investment Properties by £9.1m and an increase in operational assets of £11m, with adjustments detailed in Appendix B.

•  In March 2020 the Council purchased Tom White Waste Limited for £14.6m. The Council did not instruct a valuation as at the balance sheet date for its investment in Tom White Waste and therefore the asset was held at its purchase valuation. This was considered an uncertainty in the Council’s accounts

•  The Business Rates provision had increased in 2019/20 to £14.8m. The provision had been reviewed and it is not considered that this was unreasonable.

•  The credit loss allowance with regard to other debtors had been reviewed. It was considered that there was a risk in collecting old debt especially due to the impact of Covid-19. The Council had been to requested to review this debt in more detail in advance of the 2020/21 audit.

•  It was noted that the Council’s subsidiary, Coombe Abbey, was operating at significant losses of £354,000 up to the year ending 31 March 2020. The impact of Covid-19 has had a further significant impact on the trading of the subsidiary. The assurances from the component auditor of this subsidiary was awaited

•  Reference was made to the Council’s investment in Birmingham Airport. The trading conditions for the Airport were uncertain and it was noted that the valuation of the Council’s investment reduced from £29.3m in 2018/19 to £17.9m in 2019/20. It was possible that the value would have reduced further in 2020/21. The Council alongside the other 6 West Midlands authorities had stated its intention to engage in discussion with the Airport with regards to providing tangible support to the Airport should this be required.

The risk based review of the Council’s value for money arrangements had been completed. It was concluded that the City Council had proper arrangements to secure economy, efficiency and effectiveness in its use of resources. The VfM risk assessment to document the understanding of the Council’s arrangements to ensure critical business continuity in the current environment had been updated. No new VfM risks in relation to Covid-19 had been identified, so it was anticipated that an unqualified value for money conclusion would be issued.

None of the auditors additional statutory powers or duties had been exercised. The the majority of work under the Code had been completed but the completion certificate couldn’t be issued until the audit of whole of government accounts (WGA) had been completed.

Members sought clarification about the implications for employees of the £95,000 cap regarding pensions; further details about the implications of potential cancellations of City of Culture 2021 events; and further information about the hospitals’ business rates issue. A request was made for an update report on the key issues highlighted in the Audit Findings Report to be submitted to a future meeting of the Committee.

The Chair, Councillor Lakha and Members placed on record their appreciation and thanks to the Director of Finance, the Corporate Finance Manager and the team for all their hard work during the current year on the Council’s Statements of Accounts. The Chair also thanked Grant Thornton for all their work.

RESOLVED that:

1) Having considered the final 2019/20 Statement of Accounts, the Accounts be approved.

2) Grant Thornton’s Audit Findings Report provided alongside the accounting statements be accepted.

3) Delegated approval be given to the Director of Finance and the Corporate Finance Manager, in consultation with the Chair of Audit and Procurement Committee, to agree any final changes to the Statement.

4) An update report on the key issues highlighted in the Audit Findings Report be submitted to a future meeting when appropriate.