Mr. J. Murray, the Engagement Lead, Grant Thornton presented the Grant Thornton Audit Findings 2019/20 report and in doing so highlighted that Members had previously been made aware of the challenges faced by both themselves and officers due to the outbreak of the Covid-19 coronavirus pandemic, which had had a significant impact on the normal operations of the Council.
During consideration of this item, Members’ attention was drawn to the following:
· There was one item, in relation to housing benefit payments to claimants, which amounted to £72k, which was shown in 2019/20, rather than in 2020/21. Officers had declined to adjust this owing to the impact on ongoing claim payments and would process the change at the beginning of 2021/22. This was included in the Letter of Representation.
· The audit adjustments, as detailed at Appendix C.
· Recommendations raised for management, as detailed at Appendix A.
· The follow up of recommendations from the prior year’s audit, as detailed at Appendix B.
· The work was substantially completed, and it was anticipated that the audit opinion would be unmodified, but would include an ‘Emphasis of Matter, highlighting the material uncertainty around property valuations.
It was explained to members that Grant Thornton had competed the risk-based review of the Council’s value for money arrangements in respect of the significant risks identified in the Audit Plan around financial sustainability. It was concluded that Bromsgrove District Council had proper arrangements to secure economy, efficiency and effectiveness in its use of resources in this area.
It was also considered whether the significant challenges in relation to the financial statements audit also needed to be reflected in our value for money conclusion, given one of the National Audit Office, Value for Money (VFM) criteria which related to ‘Unreliable and untimely financial reporting that doesn’t support delivery of strategic priorities, such as the late submission of financial statements for audit’. This was considered by an independent consistency panel who agreed with their assessment that the VFM conclusion should not be qualified in this regard. This was principally because of the support from the Chief Executive to the Acting S.151 officer, and of the audit process.
Grant Thornton advised Members that they had updated their VFM risk assessment to document their understanding of the Council’s arrangements to ensure critical business continuity in the current environment. It was confirmed that they had not identified any new VFM risks in relation to Covid-19.
As detailed in the ‘Key Messages’ the need to improve the quality of working papers supporting the financial statements had been noted; to reflect the significant amount of additional audit time required as a result of poor quality of working papers.
Grant Thornton would ensure that all findings were actioned appropriately before issuing their audit opinion.
The significant audit risks included the valuation of land and buildings, as detailed on page 67 of the main agenda report. Work was undertaken to challenge management’s processes and assumptions for the calculation of the estimate, the instructions issued to valuation experts and the scope of their work.
Members’ attention was drawn to the ‘Significant findings – key estimates and judgements’, as detailed on pages 69 to 72. The use of the going concern assumption was reasonable as the Council had a realistic Medium Term Financial Plan (MTFP) and sufficient reserves to cover any short-term unexpected need.
Mr. N. Preece, the Engagement Lead, Grant Thornton further informed Members that with regard to VFM, that the MTFP as approved by Cabinet in February 2019 showed a financial gap up to and including 2022/23 of £3.4m, by February 2020 that had improved to forecast a gap, up to and including 2023/24 of £2m. The full impact of Covid-19 was still unknown. However, officers were reasonably confident that the grants would cover these costs, but this was still currently ongoing.
Whilst this was very good news, Members were reminded not to be complacent as there were still significant savings that needed to be made, which would be slightly more challenging for the Council to make as it did not provide non-discretionary services that other authorities provided. Therefore, Members were informed that there were some difficult decisions to be made in the future.
Members were referred to the Action Plan, as detailed on pages 78 to 79 of the main agenda report; and that the managements responses received were reasonable.
In response to questions from Members with regard to the comments in the report, in respect of the accuracy of the information provided by officers, the Head of Finance and Customer Services agreed that this had been ongoing issue. The archaic and cumbersome finance system that officers had had to work with did not produce the information required.
The new Enterprise Resource Planning system (ERP) system was now live, with the old system operating as a read only system. The ERP system would provide detailed information. There was a comprehensive training programme across the organisation.
The Head of Finance and Customer Services suggested that the first year would be a learning curve but was confident that the ERP system would produce better working papers. The quality of the new working papers would be more compliant with modern working practices across the organisation, enabling officers to respond to the auditors in a more timely fashion going forward.
Members were advised that there had been a full reconciliation of both systems in the run up to going live and a substantial amount of testing was carried out to ensure that the information transferred across to the ERP system was a complete record. Grant Thornton were also using some of their specialist teams to check data quality and report writing going forward. The ERP system would directly drive working papers and reports. Members were informed by the Head of Finance and Customer Services that he was confident that the crossover had been extremely successful.
With regard to the fixed assets, there had been a massive leap forward in the amount of work undertaken on the fixed assets register and the quality of work that had come from that undertaking. In respect of property, plant and equipment valuations this was currently being reviewed.
Mr. J. Murray, the Engagement Lead, Grant Thornton commented that he would agree with the Head of Finance and Customer Services. It was absolutely right that Grant Thornton had responded on the quality of working papers for the last few years. He would also agree that the new finance system was a great step forward, however, there may still be some teething problems along the way. There was a need to ensure that the training on the new system was done properly so that the system could produce what was required. They would continue to monitor this over the coming years.
Members expressed their thanks to officers and stated that there was a need to look after Council reserves and to identify savings. It was recognised that officers had worked incredibly hard during the Covid-19 pandemic, but Committee Members absolutely needed to ensure that issues were resolved for the next municipal year.
The Chairman took the opportunity to thank officers and Grant Thornton for a comprehensive report and their work in a challenging environment.
RESOLVED that the Grant Thornton - Audit Findings Report 2019/20, as detailed at Appendix 1 to the report, be approved.