Agenda item

To consider the report from the External Auditor on the Statement of Accounts 2019/20.

The ISA 260 report from the Council’s external auditors (Deloitte LLP) summarised the conclusions and significant issues arising from their audit of the 2019/20 Annual Financial Report.

Ben Sheriff (Director), Deloitte, introduced the report and stated that the audit was complete subject to receipt of the signed Representation Letter and final confirmations. They had not identified any significant uncorrected adjustments or disclosure deficiencies. Adjustments had been agreed in respect of the presentation of Marketfield Way assets and these had been addressed satisfactorily.

The Committee was reminded that year end for 2019/20 occurred immediately after the start of the first Covid-19 pandemic lockdown and this had created significant uncertainty, some of which was reflected in the audit opinion. In respect of property values at 31 March 2020, the valuer had reported ‘material uncertainty’ and there were increased levels of uncertainty within areas such as pension assets. Nevertheless, the overall the opinion was clean and there were no issues relating to value for money.

The rest of the report set out the areas that Deloitte had considered in more detail, these included:

·         Covid-19 and its impact on the audit

·         Significant risks

·         Defined benefit pension scheme

·         Property asset re-classification

Further detail was requested regarding Deloitte’s reporting of a difference of £400,000 in the value of some assets in the valuation report and the fixed asset register. It was explained that the Council had a large number of individual assets and the valuer had undertaken work to value them for the accounts. However, their reported values were not completely aligned with the Council’s records resulting in a small discrepancy between the two sets of records. This was considered a limited risk; however, a recommendation had been made that “management should put in place a second review of all valuation entries, including allocation by asset prior to being posted into system.”

A question was asked regarding the Council’s share of the liability in the Surrey Pension Funds and whether this was being managed appropriately. The reasons for the deficit were explained, including the impacts of the McCloud and Goodwin legal case judgements. The overall deficit shown on the balance sheet would always be a financial challenge as the pension entitlement of employees and pensioners was significant, but this was the same for all Local Authorities.

The Council had the ability to reduce its net liability by paying additional contributions to the pension scheme and it had some input into the Fund’s investment decisions, but these were complex matters of judgement. It was explained that the underlying asset and liabilities number were subject to market movements and the position at 31 March 2020 showed significant adverse impacts due to stock market movements in response to the pandemic. This coupled with interest rates being low, meant that the liability at March 2020 was greater. Asset prices were now a lot higher as there had been a recovery in many markets so by March 2021 some of this adverse movement may have been recovered. The primary areas of choice for the authority related to the number of employees employed, as the number of former employees with accrued pension rights and pensioners was fixed.

Members asked for clarification of the comment in the report that that the audit had been completed subject to ‘…updating our review of events since 31 March 2020 through to signing…’. It was confirmed that this was a standard form of words and that nothing had occurred that would impact on signing off the accounts.

Members of the Committee recognised that these accounts were being considered much later than the original audit deadline and it was accepted that Covid-19 had played a part in this, however it was questioned whether there had been any other issues that had delayed the accounts.

Deloitte acknowledged that there had been challenges in the last year largely through conducting audits remotely and this had delayed their work. There was also a delay due to the additional work undertaken relating to asset reclassification. The Interim Head of Finance echoed this and stated that the Finance Team was now planning ahead for 2020/21, taking on board the lessons learnt from this audit. 2019/20 was the second year the Council’s team was working with Deloitte and they were becoming more accustomed to the new style of audit contracts and the expectations of the Finance team. 2019/20 was an improvement from the previous year in this regard and the Team was now more prepared for what was expected. A further factor was that the Finance Team underwent a restructure in 2019/20 and subsequently recruited four qualified accountants during the summer. This created some disruption while these new staff were trained, and this was acknowledged by Deloitte. The pandemic was also a significant contributing factor for both teams. The main focus currently, was to enhance the quality of working papers and continue to build an effective working relationship with Deloitte.

RESOLVED that:

(i)            The report from the external auditor (ISA 260) on the 2019/20 audit be noted (Annex 1); and

(ii)          The Management Representation letter be agreed and signed by the Chair of the Audit Committee and Chief Finance Officer (Annex 2).