Decision - Ernst & Young: Audit Results Report 2014

28.1         The Committee considered a report of the External Auditors: Ernst & Young in relation to the 2012/13 Audit Results. The report summarised the findings of the 2012/13 audit, which was by that point substantially completed. It also included the key messages arising from the audit of the financial statements and the results of the work undertaken to assess the Council’s arrangements to secure value for money in its use of its resources. The intention of the external auditors was to issue an unqualified opinion on the financial statements, and an unqualified conclusion stating that the Council had proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

28.2         Councillor Sykes asked about economy efficiency and effectiveness and noted that the content of the report went into less depth than previous; he stated that there needed to be a judgment made to determine whether the Council were doing enough in this area. In response the External Auditor, Helen Thompson, explained that the content in the report was only a summary and there had been more detailed work undertaken as in previous years. The scope of the value for money conclusion would remain the same, and this formed part of the ethos from Central Government. The Executive Director of Finance & Resources added that the scope of the value for money work had reduced, and there was now more emphasis on the Council to undertaken benchmarking, and more challenge for it to understand its own costs.

28.3         Councillor Sykes went on to ask about the rate that spending was decreasing in the authority when compared with statistically similar authorities. The Executive Director of Finance & Resources explained that the authority still had relatively high costs, particularly in relation to some of the services for children and adult social care, and whilst the rate of spending reduction was not as rapid as others it left further scope for challenge in these areas.

28.4         Councillor Sykes continued his questions and asked about payroll and allowances, in particular if the assurances in previous years had been reasonable. In response the External Auditor, Simon Mathers, explained that the Council’s payroll system remained complex, whilst there had been no evidence of fraud or error it was this complexity that inherently increased the level of risk and potential for error. Mr Mathers went on to highlight that the External Auditors were obliged to report on the ongoing level of complexity, but added that there had been no backwards steps in this area. The Executive Director of Finance & Resources also stated that all major changes had been properly consulted on, and this was helping to ensure there was a much simpler and transparent allowance scheme in place across the organisation. It was noted that these changes were due to be fully implemented shortly; however, the full impact on the level of assurances would not be reported until the 2014/15 financial year.

28.5         Councillor Sykes then moved on to ask about misstatements, and in particular for more information in relation to figure of £12M; in response Ms Thompson explained that the external auditors did not test every transaction, and £12M was the figure at which an error was significant enough to adjust – any figure below this the external auditors would only have to issue an opinion.

28.6         Lastly Councillor Sykes asked about lease target arrangements, and whether this made a positive or negative difference. In response Mr Mathers explained that the error of lease disclosures was in the presentation of future amount due. The Executive Director of Finance & Resources went on to say that whilst the external auditors had a duty to report material misstatements in the accounts she had a responsibility, as the chief financial officer, to ensure the accounts were accurate; when errors were highlighted corrections could be made in certain circumstances where it was practical to make them accurate.

28.7         Councillor Ann Norman asked about valuations of assets and drew particular example of the Royal Pavilion. The Executive Director of Finance & Resources explained that there was often a judgement to be made in valuation of assets and the Royal Pavilion was a particularly unique example of this. The Head of Corporate Financial Services. Jane Strudwick, highlighted that the approach of the Council to use the insurance valuation was potentially double counting as the valuation had also included an additional 15% to cover fixtures and fittings which would already be covered as a heritage asset. The agreement had been to bring into the accounts the entire 100% of the insurance valuation for the Royal Pavilion.

28.8         Councillor Ann Norman then went on to ask about the register of contracts over £75K; in response the Executive Director of Finance & Resources gave assurance that work waas ongoing to improve completeness of the register. The authority was now asking if the £75K threshold for corporate sealing was reasonable, and if this created an onerous administrative challenge for the Authority; however, it remained important to have a good central record of contracts.

28.9         Councillor Wealls asked for a clearer definition of a unit for the purposes of accounting in the Children’s Services Directorate. In response Mr Mathers explained that he did not have this information at the meeting, but would be happy to provide this afterwards. The Executive Director of Finance & Resources helped to contextualise the matter by explaining that the usual analysis was on the spend for the appropriate group of the population; the figure would adjust to take account of the low school age population within the city and the data was an indicator of the expected spend per head of the population. When Officers wanted to do more analysis there needed to be a more sophisticated breakdown to provide better benchmarking with comparative authorities. In areas such as adult social care there was an existing set of robust national benchmarking data which would provide good comparisons; however, when the data amounts were much lower, for example for looked after children, it was necessary to ‘drill down’ more to get better benchmarking. Councillor Wealls noted that the data could be misleading, and stated he would be happy to facilitate further discussions in relation to the number of challenges. The Executive Director added that when looking at the population the driving factor could be the volume or the unit cost; it was important that officers unpick the particulars behind the figures and identify the factors driving costs.

28.10    Councillor Sykes continued this topic and queried if comparisons were made like for like; he also asked to what extent the unit costs were high, and if it was actually possible to ever compare accurately. In response the Executive Director of Finance & Resources stated that all data was benchmarked against comparable authorities, and this gave a good starting point. Historically many authorities had used the data to argue the individual circumstances of their authority; however, it was important that work was undertaken to dig down and provide more context on why an authority was different. Ms Thompson added that this was not a criticism, bur rather a starting point for investigation and the value for money programme allowed authorities to look for efficiencies. It was considered perfectly right for authorities to justify varied levels of spending, and the process allowed authorities to feel comfortable with where they sat against the comparable authorities.

28.11    Dr Horne asked the external auditors if they had any comment in relation to the uncorrected statements given that they had sight of the Council’s justification for not adjusting. In response Ms Thompson stated that the uncorrected statements had been discussed with Officers, and they would not impact on the opinion as they were below the materiality thresholds, and the reasons for not adjusting were accepted.

28.12    Dr Horne went on to ask about the financial planning for the future of the authority, and drew attention to the lack of recommendation against support for services in the medium term. In response Ms Thompson explained that this was a situation the Council were already aware of, and any recommendation would be simply confirm this position. The Executive Director of Finance & Resources added that this was the national trend, and it related to the type of language that Local Government Association were currently using. The ongoing proportion of costs for social care would overtime undermine the availability of funding for other valued services unless the underlying cause of the high social care costs were addressed. This was a challenge for all local authorities and served as a reminder that understanding the core of what was driving costs was at the heart of sustainable budget solutions. Dr Horne noted that these comments had very real implications for the work of the Committee.

28.13    Dr Horne also asked if there were any issues in the delivery of the 2013/14 value for money programme at this stage; in response the Executive Director of Finance & Resources explained that some shortfall had been reported early in the financial year, some of this has related to accelerated service redesign; however, the voluntary redundancy scheme was now closed. There had also been other pressures on reporting in month two, but all these areas would have close attention paid to them.

28.14    Before a vote was taken the Committee considered Item 29 – Statement of Accounts 2011/12 to inform the recommendations, and after consideration of both of these items votes were taken separately on each set of recommendations.

28.15    RESOLVED:

(i)                 That the Committee take note of the adjustments to the financial statements which are set out on pages 8 to 10 of the report.

(ii)               That the Committee agree to adjust the errors in the financial statements which management has declined to amend set out on pages 10 and 19 of the report or set out the reasons for not amending the errors.

(iii)             That the Committee approve the letter of representation on behalf of the Council before the audit opinion and value for money conclusion are given. A copy of the letter of representation is presented to you under a separate report on the Statement of Account 2012/13 from the Executive Director of Finance and Resources.