Agenda item

Report of the Director of Finance

The Audit and Procurement Committee considered a report of the Director of Finance that provided an update on the delayed 2019-20 accounts closedown, including responses to recommendations from the External Auditors and matters that had arisen since the last update to Committee. It was noted that Grant Thornton would provide their own official update on any outstanding issues at the conclusion of the audit. An appendix to the report provided a summary of the issues resolved and were in-Progress.

The local government accounts reporting deadlines for 2019/20 were extended due to the Covid pandemic and following the passing of the Accounts and Audit (Coronavirus) (Amendment) Regulations 2020. The revised arrangements set out were for councils to publish their draft accounts by 31st August 2020 and to have their final Statement of Accounts audited and published by 30th November 2020. The Council published its draft accounts on 26th June 2020 which provided a five-month window in which to have the accounts audited and submitted to the Audit and Procurement Committee for final approval. Grant Thornton’s draft Audit Findings Report (AFR) was submitted to Committee on 30th November 2020 and highlighted a higher than normal number of issues and adjustments for the Council’s accounts, the large majority of which had been accepted by the Council. The Committee resolved to receive an update report on the key issues highlighted in the report to a future meeting.

The Committee was also informed that it wasn’t possible for the Council’s accounts to be signed off at that time. The external auditors reported a small number of issues remained outstanding which had prevented the final audit opinion from being issued. The AFR stated that the auditor’s work was “substantially complete” and there were no matters which they were of aware of that would require modification of their audit opinion or material changes to the financial statements. The outstanding matters outlined were receipt of assurance confirmations from component auditors of Tom White Waste Limited and Coombe Abbey Park Limited, receipt of the management representation letter and a review of the final set of financial statements.

Subsequent external audit activity undertaken to enable the Council’s accounting statement to be finalised identified further issues that had been the subject of significant work since November. This had caused further delay to completion of the 2019/20 accounts and had had an impact on work required for the 2020/21 accounts. This report provided an update on this position.

The report set out the Council’s response to the Audit Findings Report brought to the 30th November 2020 meeting and outlined the auditor queries that had been the subject of additional work since that date.

The responses fell into the following categories:

a)  Matters where Grant Thornton and the Council had agreed accounting adjustments (Items 4, 5 and 6) – all these would be incorporated into the final accounting statement.

b)  Areas where further information was outstanding (Items 1 and 2) – all outstanding information had been provided.

c)  Subjects where the Council was satisfied that its existing accounting approach was robust and defensible (Items 3, 10 and 11) – the Council would continue with its existing practice.

d)  Areas where Grant Thornton had recommended valuations to be completed (Items 4, 5, 7, 9) – external valuation experts have been appointed.

e)  Remaining areas where Grant Thornton had recommended further valuation work to be completed (Items 5, 8).

In addition to these, the Audit Findings Report included a number of lower level adjustments and amendments, all of which were accepted at the time.

The two areas where the Council needs to determine its approach going forward were in respect of investment property valuations (Appendix 1 item 5) and the valuation of assets held by Tom White Waste Limited in the Council’s Group Accounts (Appendix 1 item 8).

Following the undertaking of an in-depth review undertaken by Grant Thornton the main issues raised as part of the review were:

a)  Extensive challenge on the nature of the Council’s relationship and accounting treatment of UKBIC (UK Battery Industrialisation Centre), the arrangements and accounting transactions during its construction phase, its treatment in the Council’s Single Entity Accounts and Group Accounts and the value of UKBIC as an investment on the Council’s balance sheet. The nature of the relationship between UKBIC and the Council is distinctly non-standard from the Council’s perspective and includes several questions of a quasi-legal nature.

b)  The treatment of de-recognition in the valuation of the Council’s infrastructure assets. Derecognition refers to the amount of an existing assets value that needed to be removed from the accounts when an existing asset was replaced by a new asset (particularly for instance when highways works were undertaken).

c)  The treatment of property asset value reduction for UKBIC upon completion as either impairment or downward re-valuation. This distinction was important because it was reported in different areas of the accounts and the Council had been asked to justify and disclose adequately its re-valuation treatment.

d)  The overall impact of changes in property valuations has also led to consideration of whether the Council needed to undertake a Prior Period Adjustment (PPA) to the accounts. A PPA was sometimes required where errors or changes to previous accounting treatments were identified which are judged to be so significant that their impact needed to be restated in relation to previous years’ accounts and the opening balances of the year in question. The combined impact of property valuation queries was such that the need for a PPA was now thought to be required.

Further consideration and discussion had arisen as a result of the lateness of the accounts in relation to circumstances that existed or facts that emerged subsequently relating to the financial period in question. In addition, issues had emerged in closing-down the following year’s accounts (for 2020/21) relating to accounting treatments used previously and whether balances had been brought forward correctly. These discussions had not resulted in changes to the 2019/20 accounts.

RESOLVED that the Audit and Procurement Committee notes the progress made since the last report on these matters, the current status of the 2019/2020 accounting process and the issues outstanding to be resolved.