Agenda item

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The Assistant Director, Resources presented the report which updated the Committee on the External Audit of the Borough Council’s Statement of Account and provided an update on proposals under consideration by the Government for Levelling-up, Housing and Communities (DLUHC) to clear the audit backlog of work.

The Committee was advised that the Council found itself in a position where the audit of its accounts had not been completed since 2019/2020.  It was noted that a report by the National Audit Office published in January 2023, report that at 30 November 2022 there were 45 audits outstanding from 2019/2020.

The Committee’s attention was drawn to the following sections of the report:

•           2 – The Accounts and Audit (Amendment) Regulations 2021.

•           3 – Update from DLUHC – July 2023.

•           4 – Statement of Accounts 2019/2020 and Subsequent Years Update.

•           5 – Financial Implications

The Assistant Director, Resources highlighted that the ongoing nature of the audit process continued to significantly impact resources in the finance team as well as other teams across the Council.

The Chair thanked the Assistant Director, Resources for the update report and invited questions and comments from the Committee, a summary of which is set out below.

In response to questions from Councillor Dark on the recruitment of auditors and the current situation nationally, the Assistant Director, Resources provided an overview of the first tender process operated by the PSAA to appoint auditors for the previous year’s of which 99% of local councils opted into to achieve cost efficiencies. The Assistant Director, Resources explained that following that initial tender process, the audit requirements grew due to the changing nature of councils structures such as wholly owned companies, commercial operations which resulted in increased audit work and associated costs.  The Committee was advised that the backlog was affecting other audit firms as well as EY and due to recruitment issues in the sector and conflicting priorities, they had limited capacity to deliver the audits  in the timescales allowed .  The Assistant Director, Resources outlined the measures in place to work more swiftly as soon as possible to work through the backlog to sign off the audits.

Councillor Coates commented that Ernst Young were a large organisation that he was surprised to learn had limited resources and asked how much pressure could the Borough Council and other local authorities exert to express concerns on the significant backlog on auditing the outstanding Statements of Account.

Councillor Devulapalli added that if the accounts would take so long to audit and then a revised timetable had indicated a quick turn around on three sets of accounts and asked if there would be less rigorous auditing/reporting.

The Chair, Councillor Ryves referred to 3.3 “It should be noted that it has been highlighted that in order to achieve these deadlines, it may result in qualifications and disclaimers of opinion in the short term for a number of local bodies.”  The Chair highlighted that this was through no fault of the Borough Council officers but a national problem which was not satisfactory.

The Chair invited Councillor Morley, Portfolio Holder Finance to address the Committee.

Councillor Morley provided an overview of the current External Auditor’s role and explained that there was a staff turnover issue in that when employees left the company it was difficult to recruit to the role and gave feedback from a Webinar he had attended and explained that was a new auditing body Audit Reporting & Governance Authority (ARGA) and the objective was to undertake a consultation exercise in the future and that the onus would be placed on the Auditor to complete the audits by a certain time, but highlighted that there was no timeline available  on when this work would be completed.

Councillor de Winton advised that he had read the report and was not a fan of auditors and they appeared to be a cash cow.  Councillor de Winton commented that it did not seem fair with a high turnover of EY staff that the council has to deal with, a new auditor having to learn how the Borough Council operated and its processes and therefore not being able to undertake the audits so quickly.  In response, the Assistant Director Resources explained that there had been a high level of turnover at EY which does impact the audit process.  The Committee was advised that the Council has had the same partner from EY for the past 4 years, but practice was that after 4 years the partner moved on and a handover is currently underway with the new partner.

Following questions from Councillor Bearshaw on the three outstanding accounts being audited together in one go, the Assistant Director, Resources explained that the outstanding audits could not be undertaken in one block as legislation would be required to do so and drew the Committee’s attention to the table set out in section 3.5 of the report which set out the proposed deadlines being considered for audit completion and it was anticipated that there would be a significant curtailing of audits to meet the deadlines.

In response to questions from the Chair, Councillor Ryves on audit fees going forward, the Assistant Director Resources explained that new fees were expected to be approximately 150% greater than previous ones, as auditors faced higher requirements placed upon them and to ensure all audit fees covered the full cost of a quality audit.  The Government had responded to this by offering a Local Audit Grant to Local Authority Bodies to support the costs of the increased audit requirements and it was noted that the Council had been allocated £20,359 of this grant for 2021/22.  The Assistant Director, Resources explained that it was difficult to anticipate audit fees as PSAA were using 2021/22 fees to benchmark against for which this council has not had any as yet  and advised that the 2018/2019 fees were £100,000 and that fees going forward could be estimated at £150,000 to £200,000. 

In response to comments and questions on the Borough Council’s resource available to undertake 2 audits in three months, the Assistant Director, Resources explained that a cost would be incurred by the Council and explained that the authority also had its own level of staff turnover.  Members were provided with an overview on the issues experienced within the Finance Team during the audit of 2019/2020 financial statements as a key employee had left the organisation and highlighted that as well as undertaking audit work, the team would have significant work due to  the budget setting process, closedown for 2023/24 together with budget monitoring and other day to day operations.  The Committee was advised that in the past external support had been brought in but currently had been stood down and there was potential for external support to be sought again to assist with the required work within the Finance Team.

At the invitation of the Chair, Councillor Morley, Finance Portfolio Holder addressed the Committee and commented that the Council would like to resist costs but was helpless until the Government changed the arrangement and added that the Council could lobby Government.

The Chair, Councillor Ryves proposed that the Audit Committee lobby Government which was seconded by Councillor Jones and on being put to the vote was carried.  The Chair to liaise with the Assistant Director, Resources to agree content.

RESOLVED:  The Committee noted the contents of the report.