The Chief Operating Officer (S151), Deputy Director of Finance, and External Auditor submit a report to the Audit and Risk Committee which provide an opportunity for the Committee to consider the Council’s Draft Annual Statement of Accounts and Annual Governance Statemen for 2021/22 before they are brought back to Committee for formal approval.
The Committee is recommended to consider the Draft Annual Statement of Accounts for 2021/22 at Appendix A, the Draft Annual Governance Statement at Appendix A, the update on the independent member recruitment, and the External Audit Plan at Appendix C.
Minutes:
The Chief Operating Officer (S151), Deputy Director of Finance, and External Auditor submitted a report to the Audit and Risk Committee which provided an opportunity for the Committee to consider the Council’s Draft Annual Statement of Accounts and Annual Governance Statement for 2021/22 before being brought back to Committee for formal approval.
The Committee was recommended to consider the Draft Annual Statement of Accounts for 2021/22 at Appendix A, the Draft Annual Governance Statement at Appendix A, the update on the independent member recruitment, and the External Audit Plan at Appendix C.
Ben Matthews, Chief Accountant, presented the report and drew Members’ attention to the following:
· The report touched briefly on the appointment of an independent audit and risk committee member, the post of which had been advertised in consultation with the Chair.
· The Draft Annual Statement of Accounts and Draft Annual Governance Statement had been brought to the Committee for consideration prior to being brought back to Committee in their final form in November 2022 for Audit & Risk Committee approval.
· The Annual Governance Statement as presented set out the framework in which the Council was operated, highlighting any significant governance issues, and provided an update on those previously identified.
· For the Annual Governance Statement, the Council follows CIPFAs ‘Delivering Good Governance in Local Government’ framework.
· The narrative report provided a background to the council and highlighted work it was doing including key pledges going forward and outcomes. It also provided a summary of the financial position of the Council and future outlook.
· The following items were highlighted from the Statement of Accounts 2021/22:
o The change in how income was generated since the pandemic;
o The valuation of an asset held in a Council museum had significantly increased.
o COVID was continuing to have a significant impact on the unusable and usable reserves, largely due to government grants being paid ahead of need.
o The pensions deficit of £596m. Members were reminded that this figure can fluctuate between years. It was noted this figures is based on the benefits an employee earns and their post-retirement benefits. However, due to statutory arrangements the Council’s deficit would be made good due to increased contributions of an employee and employer over their remaining working life before payments became due.
o Members Allowances and Officers’
· Members were informed of issues around the accounting of infrastructure assets, and subsequent CIPFA consultation on the resolution of issues. The Council would work through the CIPFA proposal once released to identify if this will impact the accounts. It was noted this is a national issue.
Members were then asked if they had any questions, and the following responses were made:
· Included in the narrative statement to the report, the in-year deficit in LLEP was noted. Members were informed that this was a planned deficit to enable additonal investment in supporting businesses, which would be funded from LLEP reserves.
ACTION: The Deputy Director of Finance would provide information to Members following the meeting.
· Noted was the extension of the publication deadline to 30 November 2022 for the Council’s audited Statement of Accounts and Annual Governance Statement. It was explained that pressures in the external audit sector were being felt nationally with delays in completing audits in the previous year. External Audit explained this was mainly due to the additional work they are required to undertake. Hence the government had relaxed the publication deadline for the audit of 2021/22 but would revert to a publication deadline of 30 September for the audit of 2022/23 onwards.
· During the pandemic the Council had implemented Business Support Grants, Household Support Funds, and operated Test and Trace amongst other support.
ACTION: The Deputy Director of Finance to circulate a list of schemes offered to local businesses and the public.
· It was further noted that the Better Off Leicester website had been launched recently, which enabled residents to check and maximise benefits, see support schemes, view a jobs section, and linked through to discretionary payments and Council Tax support forms, amongst other information that the site signposted to, such as Department for Work and Pensions. The site was a good tool for individuals and families to help them navigate through present problems.
· The Council had distributed to local businesses around £150million of funding over the course of the pandemic, the vast majority of which had nationally set eligibility criteria. It was reported that the first funding received on account from government was not distributed in its entirety and some had been returned to government, after every effort had been made to get businesses to apply for the funding. Some subsequent stages of the funding received had been overspent, with the overspend being claimed back by the Council from the government. It was further noted that discretionary funding of business grants where the government gave a fixed allocation had all been spent with some small overspends funded by the Council.
· With regards to fraud, the Council took positive counter fraud measures during the application process. Very often Councils were criticised for not distributing the funding quickly enough. The Council had recognised the opportunity for fraud and had put some rigorous checks in place, balancing the need for checks with the need for businesses to receive the grants.
· It was not thought the council had been subject to any major fraud, though there had been some significant national frauds, for example, applications purportedly to be from Greggs. There were, however, some isolated low-level erroneous payments identified but not systemic fraud. Any necessary recovery action and criminal proceedings would be taken if there was sufficient evidence of fraud.
· Under personal support for residents, the Covid local winter grant had morphed into the Household Support Fund which was still in operation. The council had consistently spent all funding for the support of residents and had placed money in the Council Tax Support Scheme, and Discretionary Housing Payments.
· It was reported that £650 household payments from the DWP would be rolled out to claimants nationally through the benefits system and did not involve the Council.
· The £150 Council Tax Energy Rebate had come to and was being administered by the Council. The scheme was being paid to households in Bands A, B, C and D, approximately 96% of the households in the city. Leicester City Council had been one of the quicker paying authorities and had paid the vast majority of recipients by late April / early May, with only queries holding up payments to the remainder. Payments had been made into the bank accounts of residents who paid Council Tax by Direct Debit, which was about half of households. The remainder would be issued a Post Office voucher for £150. The Council had not required people to apply for the rebate, and vouchers would be sent direct to premises. Essentially all eligible people had been paid bar the ones with queries. If the Council spent more than the government had given, then a top-up could be claimed. If not all of the rebate was spent, that would be passed back to government.
· The government had also given the Council £836,250 as a discretionary fund which could be used to support households not eligible for the mandatory scheme.
· It was asked how much of the Right to Buy (RTB) sales money was available to build or acquire other Council Houses.
ACTION: The Head of Finance to provide the information to Members.
· It was explained that figures in brackets indicated a net income (or a surplus). Figures not in brackets were a spend (or deficit). For the purposes of the Comprehensive Income and Expenditure Statement, Net Expenditure for 2020/21 was £164million, and for 2021/22 there was net income of (£475million). It was noted that the figure included accrual and estimate figures, for example, pension liability, and asset valuation. The increase in the income was because of asset valuations which had improved over the past year, and the pension pension liability had decreased. The change in those figures did not represent a change that affected the Councils spending power.
· Members noted the value of the heritage assets in the reports and asked if any of the assets could be sold to provide money for the Council. It was explained that insurance valuations did not mean the asset was worth the amount stated on any particular piece. Legal advice would have to be sought on what the Council could and could not do with regards to its assets.
· Raised was the claim lodged by Biffa with the HMCTS. It was noted that the waste collection and disposal PFI contract with Biffa was substantial and clarity was sought by Members from External Audit as to whether there would be some provision made against the claim before the final accounts were signed off. It was reported that currently it was a contingent liability and the right classification. External Auditors would be seeking an update from officers before the accounts are finalised and the audit completed.
Grant Patterson of Grant Thornton, External Auditor, then presented the Council’s external audit plan, and the following points were noted:
· The purpose of the audit was to give a conclusion and opinion on the Statement of Accounts. Key matters at page 199 in the report listed factors taken into account when determining risk of material misstatement. It was on those areas of accounts that External Auditors were expected to place the greatest audit effort.
· Significant risks identified were dictated by auditing standards and were highlighted at pages 202-205 in the report.
· The presumed risk of fraud was a rebuttable presumed risk that revenue might be misstated due to the improper recognition of revenue. It was ultimately concluded that with the controlled environment of the Council and the nature of those transactions that the actual risk of material fraud was low and External Audit could rebut those risks.
· In terms of the risk of management override of controls, it was non-rebuttable. External Audit would look for when management could circumvent control to achieve a particular outcome, and would focus work on journals, and also significant judgements and estimates in financial statements that could be subject to bias.
· Two other items of significant risk were the valuation of the pension fund net liability and valuation of land and buildings, including council dwellings, where management’s processes and assumptions would be audited.
· Brought to the attention of Members were a couple of other areas of audit focus. One was around the valuation of infrastructure assets which were still the subject of discussion at CIPFA which might result in a change in the code of accounting practice. Secondly there was the completeness, existence and accuracy of cash and cash equivalents, and External Audit were enhancing their procedure around cash in general.
· There was a balance between an efficient and effective audit and an assurance there were no misstatement. On page 212 to the agenda, materiality was outlined, which was around £15million for the year, with a lower threshold set below £750k at which misstatement would not be reported to the Audit and Risk Committee as they would not be considered material.
· The risk assessment process was iterative and would continue on as things developed through the audit.
· The risks of significant Value for Money weaknesses were reported at page 215 in the report. It was noted it was the second year of new arrangements. Threats to financial sustainability and governance would be considered by auditors, such as the ongoing impacts of Covid-19.
· The final report would be taken to Full Council to show transparency, and was a recommendation that had come out from the Redmond Review as good practice.
· Audit fees were outlined at page 217 to the report, and included variations for additional work, with proposed additional fees. The fees were similar to 2020/21, with a slight increase in non-audit service. There had been one change from the last year as the Council had subscribed to CFO insights, and the External Auditor was satisfied they were not conflicted in the non-audit work they were undertaking.
· The Financial Reporting Council’s (FRC) inspection had shown Grant Thornton as making progress and providing a quality service, which should give the Committee confidence that External Auditors were working in the right direction.
· It was noted that internal audit looked at the lower level of controls for cash handling, with the focus for External Audit being on bank reconciliation. It was further noted that there was a whole team dedicated to cash and bank control in the council.
The Chair thanked the officers for the report and looked forward to the final accounts coming back to Committee in November 2022.
RESOLVED:
That:
1. The Audit and Risk Committee note the Draft Annual Statement of Accounts for 2021/22, the Draft Annual Governance Statement, the update on the independent member recruitment, and the External Audit Plan.
2. The Deputy Director of Finance to provide information to Members on the in-year planned deficit in the budget for the LLEP.
3. The Deputy Director of Finance to circulate a list of schemes offered to local businesses and the public during and following the Covid pandemic.
4. The Head of Finance to provide information to Members on how much Right to Buy (RTB) sales money was available to the Council to build other Council Houses.
Supporting documents: