The External Auditor presented the Audit Results Report - ISA 260 for the year ended 31 March 2016. The report summarised the findings from the 2015/2016 audit which was substantially complete. The report included issues arising from the audit of financial statements and the results of the work undertaken to assess the Councils arrangements to secure economy, efficiency and effectiveness in the use of resources.
Subject to satisfactory completion of the outstanding items included in Appendix B to the report, EY anticipated issuing an unqualified opinion on the Councils financial statements. The audit certificate would be issued at the same time as the audit opinion.
In terms of the audit itself, some audit differences were highlighted to management for amendment and these had been corrected. Information regarding these amendments were detailed in Appendix A of the submitted report. There were no uncorrected audit differences to report. In relation to scope and materiality, the threshold for reporting audit differences which impacted the financial statements had reduced slightly from £393,500 to £390,000.
The audit risks identified during the planning phase of the audit, audit procedures performed and details of the assurance gained were detailed in Section 3 of the submitted report. The External Auditor highlighted that in the draft accounts, the Council had not made a provision for redundancies in relation to the Leadership Team Review or business rates appeals. This had been amended in the final accounts.
In relation to the new finance system, Agresso, no issues were identified from sample testing of the migration of data. However, it was noted that Council officers had limited involvement in the implementation of the new finance system, as it had been led by Agresso personnel. As a result, the Council had limited knowledge of the controls used to ensure the successful migration of data between systems. The External Auditor therefore recommended that Council Officers should have more involvement in the implementation of new systems in order to ensure that appropriate controls, which were relevant to the Council, were introduced.
With reference to the valuation of land and buildings, the External Auditor commented that this was a significant risk for all local authorities since evaluations were complex. The valuation of land and buildings was subject to a number of assumptions and judgements and even a small movement in these assumptions could have a material impact on the accounts. However, there were no matters to report arising from the External Auditors work in this area.
Other matters that were significant to the audit were also highlighted. During 2015/2016, the Council had treated as "disposed" an asset held in the course of construction of £3.2 m. This related to BoHo 5, where the Council was constructing the asset on behalf of the Homes and Communities Agency (HCA). The Council capitalised the costs of the construction work on its balance sheet in the prior year as it believed the asset would be owned by the Council on completion. However on review of the agreement with the HCA, it was identified that the asset would remain with the HCA and the construction costs were fully funded by the Agency. The External Auditor recommended that lease agreements and contracts were reviewed prior to the commencement of building work so that the correct accounting treatment was implemented at the start of a capital project.
In 2014/2015 Middlesbrough Council was the subject of a qualified conclusion in relation to value for money, issued by the previous External Auditor. Middlesbrough Council implemented a Council Improvement Plan (CIP) to address each area identified in the qualification. Although progress was made against the CIP in 2015/2016 a number of actions were incomplete at 31 March 2016. Work commissioned during the year by the Council from its internal auditor on project management and property disposal arrangements confirmed limited progress in strengthening these processes. Whilst the External Auditor acknowledged that improvements had been made, there was still work to do, and therefore the qualified conclusion in relation to value for money remained. The External Auditor was however satisfied that in all significant respects, Middlesbrough Council had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2016.
The Interim Chief Executive commented that the Council had taken the time to properly understand, investigate and resolve the issues raised at the highest level and was confident that the effort put into addressing those issues would result in an unqualified audit opinion next year.
In response to a query from a Member as to whether all sales of Council assets should have been frozen while the CIP actions were implemented, the Interim Chief Executive explained that whilst the Auditors had highlighted areas for improvement in the Councils property disposal processes, there was no evidence of any impropriety in the transactions completed.
AGREED that the Chair of the Corporate Affairs and Audit Committee was authorised to sign the Letter of Representation on behalf of the Council.