Agenda item

The External Auditors from Grant Thornton presented a report on progress in delivering the external audit function for the Council and provided a wider audit sector update.

It was recapped that a draft version of the Council’s 2020-21 financial statements was presented to Members of the Committee in December 2022, however, the Council’s Section 151 Officer had not signed off these statements to date and thus financial statements for 2020-21 had not yet been submitted to the External Auditor. It was acknowledged that this was due to the Section 151 Officer awaiting the conclusion of the External Auditor’s work on opening balances before signing the draft 2020-21 financial statements.

The External Auditor reported that testing had been performed on the data migration event from the Council’s legacy financial ledger, eFinancials, to the new financial ledger supplied by TechnologyOne. Testing involved the selection of 25 transactions from the eFinancials reports to the TechnologyOne system and 25 transactions from the equivalent TechnologyOne transactional reports to the eFinancials system and checking that they had been migrated appropriately. No issues had been identified during this testing.

It was explained by the External Auditor, however, that the number of transactions tested represented a negligible volume of total transactions processed in the data migration event and the External Auditor had been unable to gain sufficient assurance on the basis of this testing that the whole data migration event was performed correctly. Furthermore, random anomalies had been identified by Council’s finance officers in their own work on data migration.

As a result automated solutions for gaining assurance over the transferred data through testing back-ups taken from the eFinancials system were currently considered as this would provide a much broader coverage of data than could be tested manually. The Interim Director of Finance commented that enquiries had been made with the legacy financial ledger provider, eFinancials, about re-gaining access to transactional reports from that system. This would necessitate a contract extension.

It was noted that 31^st May 2023 was the statutory deadline for local authorities to submit the draft 2022-23 financial statements to their external auditors. The Council was significantly behind in terms of completion of its Accounts audits, and the Committee was reminded the Council was issued with statutory recommendations under Section 24 of the Local Audit and Accountability Act 2014 primarily for non-delivery of its 2020-21 Statement of Accounts.

The External Auditor reported on their Value for Money responsibilities and in doing so noted that an Interim Auditor’s Annual Report for the 2020-21 financial year was provided to the Committee in November 2022, and it was anticipated that a joint Interim Auditor’s Annual Report for financial years 2021-22 and 2022-23 would be issued later in the year.

It was reported that there was a likelihood of external audit fee variation due to the impact of delays in financial reporting and the impact of the Section 24 Notice being issued to the Council. The original fee proposed for 2020-21 audit work of Bromsgrove District Council was around £61,000. It was reported that given the work requirements the final fee could exceed £100,000. Any proposed fee variations would be subject to discussions with council management and would have to be submitted for consideration by Public Sector Audit Appointments Limited (PSAA) in their capacity as an external auditor appointer under the audit appointments scheme.

Members asked a number of questions of the External Auditors and Council Officers to which the following responses were provided:

·       Indicative dates for completion of outstanding audits of the Council’s financial statements were provided. It was currently estimated that the external audit of 2020-21 financial statements would be finalised in November 2023, the audit of 2021-22 financial statements in June 2024, and the 2022-23 financial statements in November 2024. It was highlighted, however, that this was the best-case scenario and slippage on this indicative timeframe was possible, especially on the 2021-22 financial statements indicative date.

·       The Interim Director of Finance and Section 151 Officer explained that the non-submission of the draft 2020-21 Accounts to date was due to the possibility of the External Auditor not agreeing with the data take on balances at this point which could lead to the issuing of qualified accounts. At the moment, discussions were taking place to re-access data on the legacy ledger system, eFinancials, which would help the External Auditor to gain assurance over the data take on process.

·       It was reported that the Council had around £5 million in general reserves and around another £5 million in earmarked reserves which meant there was no imminent financial danger to the Council. In the Local Government Association (LGA) Corporate Peer Challenge the Council was deemed to be mid-table among lower-tier local authorities in respect of its financial position. It was added that in the opinion of the External Auditor the Council was transparent about its financial challenges in the Medium Term Financial Plan (MTFP).

·       It was noted that the financial position of the local authority sector over the medium to long term was currently unsustainable as local authorities relied heavily on central government revenue funding allocations which had been cash flat or negative for a number of years, and this was coupled with challenges such as inflation. These factors increased the likelihood of councils having to increasingly utilise its reserves to support revenue budgets, which was unsustainable.

·       The External Auditor reported that the risk of the Council being re-issued with Section 24 Notice was low as progress was being made against the recommendations in the Notice. Progress in finalising the 2021-22 Accounts would determine if another Section 24 Notice was required.

·       With regards to the external auditor appointment, it was reported that Grant Thornton would remain responsible for auditing the Council’s Statements of Accounts for 2020-21, 2021-22 and 2022-23. From 2023-24 the Council’s Accounts were to be audited by Bishop Fleming LLP who were appointed through the Public Sector Audit Appointments (PSAA) scheme. It was added that Bishop Fleming could begin to undertake transactional analysis and value for money work for 2023-24 but would not be able to undertake audit work on the 2023-24 Accounts until the financial statements for previous years had been audited.

·       The loss of key staff members was reported as the main risk for the Council. It was noted that the loss of the corporate finance team staff at the time of the new ledger system launch was one of the key reasons that led to subsequent issues with submissions of financial statements. It was reported that currently there were only a couple of vacancies in the Council’s finance team.

·       The Portfolio Holder for Finance and Enabling addressed the Committee and explained that the Council’s financial position had been getting increasingly difficult prior to the appointments of the current Interim Director of Finance and Section 151 Officer and the current Head of Finance and Customer Services. These appointments, it was reported, had resulted in measurable progress in the Council’s reporting of finances and in more decisive actions being taken on balancing the budget.

·       Members were assured that the External Auditor was fully staffed for auditing the Council’s Accounts. A dedicated team of auditors was allocated specifically for the audit of Accounts of Bromsgrove and Redditch Councils and the West Midlands Combined Authority (WMCA).

·       It was explained that the threshold that would necessitate issuing the Council with qualification on the Statement of Accounts was expressed in terms of the percentage variance between the local authority’s gross expenditure against accounted expenditure. For the Council’s 2020-21 Accounts this threshold level of variance amounted to around £0.9 million.

·       Members queried what safeguards were in place to monitor the Council’s expenditure and ensure it was appropriately accounted for. In response, it was reported that the Council had a key decision threshold of £50,000. Any decisions above that amount had to be made by Cabinet. Additionally, it was the Council policy that purchase orders had to be raised for every procurement regardless of value.

·       It was reported that no restrictions on spending had been placed on the Council through the Section 24 Notice. It was reported that budgetary constraints remained but these were in terms of ensuring the budget was sustainable, including in the medium to long-term. It was added that most the Council received most of its funds from various central government grants and that Council spending was planned as part of the budget setting. For Bromsgrove the annual spend amounted to around £50 million.

·       The Council’s vacancy rate was reported at 14.7 per cent which was similar to the national average for staff turnover of around 15 per cent. The service areas where the Council was at higher-risk of staff turnover included housing, planning, building control, and finance staff.

RESOLVED that the External Audit Progress Report and Sector Update be noted.