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Agenda item

Reports from External Auditor - March 2019

To receive and note the attached reports from the Council’s External Auditors, Grant Thornton UK.

Minutes:

The covering report from the Financial Services Manager (FSM) enclosed two reports from the External Auditor Grant Thornton UK for consideration by the Board:

 

·         The Audit Plan for the Council for the year ending 31 March 2019 (attached as Appendix A to the report);

·         The External Auditor’s 2017/18 Certification Letter for the year ending 31 March 2018 (attached as Appendix B to the report).

 

Attached as Appendix C to the FSM’s report was a letter from the External Auditor addressed to the Chairman of the Audit Board which set out how the Audit Board gained assurance from management. Members were advised that the FSM was co-ordinating a comprehensive reply to the letter for the Chairman’s signature.

 

Elizabeth Jackson (Engagement Lead) Grant Thornton advised the Board of the following headlines in her External Audit Plan for the Council’s accounts in the year to 31 March 2019 (Appendix A to the report).

 

Three (3) Significant Risks had been identified by the External Auditor (Appendix A - p.5/6 agenda p.13/14) but those risks were standard and applied to all Councils:

 

·         Management Override of Controls - this was a non-rebuttable presumed risk under ISA (UK) 240: that Council(s) faced external scrutiny of its spending, and that such scrutiny could potentially place management under undue pressure in terms of how they reported performance in particular journals, management estimates and transactions outside the course of business, and was therefore classed as a significant risk to the Council. Grant Thornton, as External Auditors, would evaluate the design effectiveness of management controls in these areas and recommend as necessary;

·         Valuation of Council Property, Plant and Equipment - the Council revalued its land and buildings on a rolling quinquennial (5 year) basis to ensure that carrying value was not different from current value. This represented a significant estimate by management in the Council’s financial statements, and the External Auditors had identified land and building revaluations and impairments as a risk requiring special audit consideration. Grant Thornton would review management’s processes and assumptions in these areas, consider the competence, expertise and objectivity of the Council’s valuers, and test the valuations with their own valuation professionals;

·         Valuation of the Pension Fund net Liability – the Council’s pension fund net liability, as reflected in its balance sheet as the net defined benefit liability, represented a significant estimate in the financial statements given the size and numbers involved, and the sensitivity of the estimate to change in key assumptions. The External Auditor had therefore identified the Council’s pension net liability as a significant risk and would update their understanding of the processes and controls currently put in place by management and ensure that the Council’s pension fund net liability was not materially misstated and evaluate the design of the associated controls.

 

Materiality for Planning Purposes (Appendix A p.8 agenda p.16)

 

Members were advised that the External Auditor had determined financial statement materiality based on a proportion of the gross expenditure of the Council for the financial year, using the same benchmark as the previous year. Materiality at the planning stage of their audit of the Council was £1.26m in total (£1.28m in previous year) which equated to 2% of the Council’s forecast gross expenditure for the year ended 31 March 2019. This was the same % total as the previous year. If during the course of the audit Grant Thornton became aware of facts and circumstances that would have caused the External Auditor to have made a different determination of planning materiality, these factors and outcomes would be brought to the attention of the Board. Any individual misstatements of materiality below the £63k threshold would not be reported to the Board.

 

Value for Money (VfM) Arrangements (Appendix A p.9 agenda p.17)

 

The UK leaving the European Union (Brexit) on 29 March 2019 [when the report was written] posed a significant VfM risk for the Council and all local authorities, in terms of national and local implications from Brexit impacting on the working of the Council. The External Auditors were satisfied that the Council was working effectively with Kent County Council, neighbouring authorities and other partners, to mitigate the effects of Brexit as and when it occurred.

 

Audit Fee (Appendix A p.10 agenda p.18)

 

The Planned Audit Fee would not be less than £35,732 a significant reduction of 23% from the previous year (£46,405) which reflected the recent procurement exercise by Public Sector Audit Appointments which had generated savings for the public sector.

 

Certification Letter for Year ended 31 March 2018 (Appendix B agenda pages 25-27)

 

The External Auditor’s letter, addressed to the Strategic Director (Internal Services) in her role as Section 151 Officer, set out details of the Auditor’s certification work in respect of the Council’s Housing Benefit subsidy claim to the Department of Work and Pensions (DWP) for the year ended 31 March 2018.

 

The Auditor had identified several issues (set out in tables A and B attached to the letter) plus two errors which had recurred from the 2016/17 certification work undertaken by Grant Thornton. However, the Auditor stressed that the financial impact on the Council’s claim (as reported to the DWP) was relatively insignificant, compared to the total subsidy received by the Council from the Department.

 

Members were advised that as a result of the errors identified, the External Auditor had issued a qualified assessment of the Council’s Claim, but this was not unusual. All Kent authorities had received a similarly qualified letter from their Auditors regarding their Housing Benefit Subsidy claims to the DWP, a pattern that was repeated across 93% of all local authorities in England.

 

 

                        RESOLVED:

 

1.    That Members note the contents of the plan for the audit of the Council’s 2018/19 accounts from the External Auditor, as set out in Appendix A to the  FSM’s covering report;

2.    That Members note the contents of the External Auditor’s 2017/18 Certification Letter attached as Appendix B to the covering report;

3.    That Members note the letter from the External Auditor attached as Appendix C to the report and the proposed response.

 

Supporting documents: