The External Auditor presented a report on the principal matters that had arisen to date from the audit for the year ended 31 March 2012. The audit testing was not yet complete and the results of the work carried out to date in relation to significant risks were summarised in the Executive Summary. Although certain procedures were still outstanding and needed to be completed before the audit could be finalised, the External Auditor expected to complete the audit in line with the statutory timetable, with the Accounts being signed by 28 September 2012. Details of the outstanding items were listed on page four of the External Auditors report.
The following significant risks had been identified and the External Auditor provided a detailed explanation and update as to the current position for each of the following items:
· Revenue recognition: recognising grant income.
· Recoverability of investments.
· Valuation of fixed assets.
· Accounting of heritage assets.
· Disclosure of related parties.
· Presentation of summary financial statements.
· Risk of Accounts Payable control deficiencies.
· Management override of internal control.
· Financial standing.
The External Auditor was required to form a conclusion on the Councils arrangements for securing economy, efficiency and effectiveness in the use of resources, known as 'value for money'. The key audit risks identified were as follows:
· Financial sustainability.
· Asset management and development of the property hubs.
· Management of information across the Council.
There were no issues that impacted on the value for money conclusion and more detailed findings and conclusions would be reported to the Audit and Governance Committee in a separate management letter.
With regard to risk of Accounts Payable control deficiencies and the fraud that had been outlined at the June meeting, the External Auditor explained that some testing had been carried out to check whether the new controls were operating correctly. The External Auditor would be making some additional recommendations to further strengthen controls.
The External Auditor had focussed on a case study on the information flows on safeguarding within Children Families and Learning, due to continued pressures in that service area. No issues had arisen that impacted on the Value for Money conclusion, however a number of observations and recommendations in relation to the sources of information available to the Council and how that information was used had been noted and would be reported in the management letter.
An updated Appendix 1: Audit adjustments and uncorrected misstatements was tabled for Members information. The impact of these adjustments was to decrease the net assets by £11.5m and increase the net deficit by £4.5m, with nil impact on the general fund. Uncorrected misstatements identified to date would decrease net assets by £581K and increase the net deficit by £84K. Management had concluded that the total impact of the uncorrected misstatements was not material in the context of the financial statements as a whole. The impact of the IAS19 pension adjustment was £65.2m. The total impact of the adjustments was a £53.7m increase in net assets.
A copy of the representation letter to be signed on behalf of the Council was included at Appendix 2 to the submitted report. It was confirmed that the audit fees were in line with the original plan.
On satisfactory completion of the outstanding matters, the External Auditor anticipated issuing an unqualified audit opinion on the truth and fairness of the financial statements, in addition to giving an audit opinion on the whole of government accounts forms. The External Auditor did not anticipate reporting any matters in respect of the Councils overall Value for Money arrangements.
ORDERED that the External Auditors progress report on the audit of Middlesbrough Council Statement of Accounts 2011/2012 be received and noted.