The External Audit Manager from Deloitte presented a report on the principal matters that had arisen to date from the audit for the year ended 31 March 2015, and outlined the main points as follows:
There were a number of procedures outstanding, principally around the recognition of grant income and the valuation of property, plant and equipment. Deloitte intended to complete the audit procedures and expected to issue an unmodified opinion on the accounts, subject to satisfactory conclusion of outstanding procedures, by the 30 September 2015 deadline.
Deloitte intended to issue a qualified opinion on the Councils arrangements for securing Value for Money in its use of resources.
Work on the Whole of Government Accounts (WGA) process was still to be completed and this was in line with work being scheduled to enable the External Auditor to provide a consistency opinion to the National Audit Office (NAO) by 2 October 2015.
Materiality was set at a level of £4.4 million and all uncorrected errors over a threshold of £0.22 million were reported.
One deficiency had been identified with respect to a significant internal control, which related to a lack of separate of duties in making journal adjustments to the accounting records. The Audit Manager confirmed that whilst this deficiency had been identified, there had been no errors detected in the sample of journals tested. A recommendation had been made for senior staff to perform sample checks in this area and other areas of the financial reporting process which were detailed in Appendix 4 to the submitted report.
An objection to the 2013/2014 accounts had been considered and Deloitte had concluded that it was not in the taxpayers interest to take further action.
The following significant risks had been identified and the Audit Manager provided a detailed explanation and update as to the current position for each of the items:
Recognition of grant income.
Valuation of Property, Plant and Equipment and Investment Properties.
Adequacy of Related Party Disclosures.
Management override of key controls, as presumed by auditing standards.
The Audit Manager drew Members attention to the Appendices to the submitted report. Appendix 1 detailed the audit fees for 2014/2015 and confirmed that Deloitte were independent of the Council. Appendix 2 set out the responsibility between Deloitte and the Council for detecting fraud and error. Appendix 3 contained a schedule of uncorrected misstatements, a summary of adjusted items and a schedule of uncorrected disclosure misstatements identified from the audit. Appendix 4 to the submitted report listed Deloittes recommendations on the audit and the Audit Manager provided a detailed explanation of each recommendation.
The Director from Deloitte reported on the Value For Money (VFM) conclusion and the extent to which the Council had proper arrangements in place to secure value for money. The External Auditors preliminary assessment had identified the following significant risks in relation to the VFM conclusion: financial planning, Change Programme and efficiency plans; and property disposals. An additional risk was identified in relation to project management as the Internal Auditor issued a 'Cause for Concern' opinion in this area. Linked to this, the External Auditor had also raised concern over the adequacy of capital programme reporting and monitoring.
Deloitte intended to issue an 'except for' qualification to the VFM conclusion, confirming satisfaction with the arrangements in place during 2014/2015, with the exception of the following three areas: Project Management arrangements; Capital Programme Monitoring Reports and Governance arrangements for the disposal of properties. Details of the Auditors findings and observations were contained in the submitted report and the Director emphasised that the issues raised related to corporate governance arrangements in relation to securing VFM rather than on the Accounts.
Although some suggestions for improvement had been identified, the External Auditor had noted good progress in the development and implementation of the Change Programme and in the Middlesbrough Manager initiative. The Change Programme and Medium Term Financial Plan (MFTP) were broadly aligned in terms of spending profile and plans were in place to deliver the savings required in 2015/2016. The level of reserves continued to improve and the Council had sufficient financial reserves to cope with the risk of non-achievement of savings in the short term, with work ongoing to develop plans for future years.
The Director acknowledged that management were addressing the concerns that were subject of the VFM conclusion qualification via the Improvement Plan and that progress had been made.
The Council was required to produce an Annual Governance Statement (AGS) for publication with the Annual Accounts, to summarise significant governance issues and provide an open analysis of significant governance matters within the Council. Deloitte had reviewed the draft AGS and had discussed a number of amendments with the Council to better reflect the Auditors understanding of the Council and its operations.
The Director reported that a formal objection to an item of account, namely the income arising from taxi licence fees, had been received and accepted in relation to the 2013/2014 accounts. Deloitte had completed an investigation and issued a Statement of Reasons summarising its conclusions on 15 September 2015. The same objection to the 2014/2015 accounts had been received but no additional work would be carried out since the Auditors conclusions had been issued.
In response to a query, the Director informed the Committee that there was a protocol in place for the transition of the Council to a new External Auditor and it was anticipated that the new Auditor would follow up recommendations from this years audit of the Accounts.
AGREED that following the clarification of outstanding matters from Deloittes audit of the 2014/015 Accounts, the Chair of the Corporate Affairs and Audit Committee was authorised to sign the Letter of Representation on behalf of the Council.