The report of the External Auditors (Mazars).

The Committee considered the report of the External Auditors (Mazars) which set out progress towards completion of the annual external audit and provided a summary of reports and publications which may be of interest to the Committee in its wider governance role.

Karen Murray (Partner, Mazars) introduced the report stating, with regard to the completion of the 2019/20 Whole of Government Accounts (WGA), that updated submissions were received from the Council in December 2021, resulting in completion of the audit within the final deadline.  As previously reported, the delays were described as being due to technical difficulties with the interface with the HM Treasury online portal and subsequent output to evidence the trail of audited financial statements.  Delays were also due in part to the unresolved audit queries as a result of staff absences which had led to additional audit work resulting in additional fees in line with Public Sector Audit Appointment (PSAA) arrangements.

Work concerning financial statements, audit queries and evidence requests for 2020/21 was still being progressed across a number of account areas, although the number of outstanding areas had significantly reduced. It was reiterated that the most significant and complex area requiring completion was in relation to sample testing of the valuation of Council land, buildings and investment properties, involving input from several external valuers across a diverse asset base. The intention was for Mazars to complete their audit work in time for the Committee’s March meeting however the challenges and complexities associated with this particular area of activity presented a risk that that timetable may be unachievable.

In respect of audit work in connection with Value for Money arrangements, changes to the NAO Code of Audit Practice had changed the nature of external audit work for arrangements for 2020/21.  This work would be concluded in conjunction with the completion of the activity around financial statements.

With regard to Whole of Government Accounts (WGA) work for 2020/21, the Committee was invited to note that instructions and timetable had not yet been issued resulting in the Council being unable to progress its 2020/21 submission. It was explained that this was because HM Treasury was in the process in seeking to resolve challenges with the system that they use.  In addition, Mazars’s audit instructions and timetable are issued by the National Audit Office. Those instructions had also not yet been issued and as a result, those delays to the timetable would place additional pressures on the Council and Mazars.

Moving to discussion about the national publications, Ms Murray drew the Committee’s attention to a consultation announced by the Chartered Institute of Public Finance and Accountancy (CIPFA) on time limited changes to the Code with effect from the end of March 2022.  The aim being to help alleviate delays to the publication of audited financial statements in light of only 9% of Local Authority accounts in England having met the audit publication deadline of 30 September 2021. Ms Murray indicated that the consultation should be considered in conjunction with newly announced measures to improve the timeliness of local audit and accounts as well as confirmation of the audit timetable by the Department of Levelling Up, Housing and Communities (DLUHC).  These include additional funds and an extension of the deadline for publishing accounts.

There was a discussion about the impact of the delays on the 2021/22 external audit.  The Committee was informed that some aspects of the audit were possible, though the progression of detailed audit work would be delayed. The associated changes to the audit timetable would need to be worked though in consultation with the Council’s finance teams to agree an achievable timetable.

With regard to the anticipated completion date of March 2022, Ms Murray described the challenges and complexities at large in the audit for valuation of land, buildings and properties.  The Deputy Chief Executive and City Treasurer explained that in recent years there had been a change in emphasis on the importance of valuations, with local government gradually moving towards an audit regime similar to that found within the private sector. For the private sector the treatment of assets on the balance sheet was material, in that collateral may be raised against it.  However, in local government bodies, the position differed with regard to  public sector assets (eg schools) and this presented a challenge in terms of financial value in local audits, with an associated pressure to provide the same quality of regularly updated valuations across all of the public estate.  Turning to the CIPFA consultation referred to by Ms Murray, the Deputy Chief Executive and City Treasurer explained that the aim of the consultation sought to establish whether valuations for some public sector assets could be simplified. However, on the assumption that this was not possible a significant investment in work to underpin valuation records of the Council’s complex and diverse public sector estate was likely.  With regard to the Council’s  response to the CIPFA consultation, the  Deputy Chief Executive and City Treasurer informed the Committee that this would be done in collaboration with Core Cities colleagues in respect of the valuations, however irrespective of the outcome of the consultation it was felt that a material change to the 2021/22 audit was unlikely due to tight timescales.

Decision

To note the report.