Agenda item

Report of the Chief Operating Officer (Section 151 Officer)

The Audit and Procurement Committee considered a report of the Chief Operating Officer (Section 151 Officer), which provided an update on the delayed 2019-20 and 2020-21 accounts, including matters that have arisen since the last update to the Committee.  It was noted that Grant Thornton would provide their own official update on any outstanding issues at the conclusion of the 2020-21 audit.

Grant Thornton had presented two draft Audit Findings Reports to the Committee, in November 2020 and November 2021.  These reports highlighted a higher than normal number of issues within the Council’s accounts.  Where the auditors have required these to be adjusted for within the accounts, these have been accepted and implemented by the Council.  However, because the accounts remain unfinalised, further audit work has identified additional issues which need to be resolved before the accounts can be approved.

The additional issues to be resolved are the finalisation of accounting statements for the Council’s Group Accounts (including the accounts of the Council’s Key Group companies) and accounting for highways infrastructure assets.

The group accounting statements are those that combine the Council’s own accounts with those of its company interests to present analysis across the whole Council ‘group’.  Grant Thornton have challenged why funding of the grouped elements has previously only reflected unusable reserves.  Upon analysis, the Council recognises the approach is not consistent with the accounting guidance published by CIPFA and that it would be reasonable to expect company interests in the group accounts to be represented by both unusable and usable reserves.  The Council is now re-analysing this position and is in dialogue with the auditors over a revised presentation.

Accounting for highways infrastructure had been a topic of debate for several years within local government and recent challenges in other councils has caused further sector-wide discussions.  The issue relates to highways infrastructure assets (essentially roads and pavements) and specifically whether local authorities should be assessing if there is any residual value remaining in replaced components that needs to be de-recognised when the new expenditure is made.  While this is standard practice for many fixed assets, it may not generally be being implemented for infrastructure assets because there are significant practical difficulties in applying a standard approach for such assets.  Auditors across the sector have paused completion of council accounts across the country with Grant Thornton awaiting further guidance through CIPFA before they can sign off the Council’s 2019-20 accounts.  A CIPFA consultation on changes to the Accounting Code of Practice in relation to infrastructure assets is due to finish in June 2022 which should then enable a way forward to be agreed with the auditors.

The Committee noted that, as reported previously, the 2019-20 delays were concerned solely with technical accounting matters, largely around the valuation of assets on the balance sheet and consolidation of financial results into summary accounting statements.  If more serious concerns had arisen, the auditors would have brought these to the Council’s attention.  In addition, the Council had already addressed one of the concerns of Grant Thornton that there was insufficient capacity and expertise to manage the Council’s accounting requirements both by appointing expert external support for the key valuation processes and internal capacity specifically targeted at some of the more complex areas of accounting.  Together these are already helping the Council to tackle the backlog of issues and put in place robust foundations for compiling future accounts.

RESOLVED that the Audit and Procurement Committee note the progress made since the last report on these matters, the current status of the 2019-20 and 2020-21 accounting process and the issues outstanding to be resolved for 2019-20.