Agenda item

The Deputy Director of Finance submits a report to the Audit and Risk Committee which provides an update on the progress of the statement of accounts and external audit for 2020/21 and 2021/22, and the decision of the Monitoring Officer to appoint Bipon Bhakri as an Independent Member of the Committee.

The Committee is recommended to note the contents of the report and the update provided on the progress of the external audit, and to support Bipon Bhakri in his role as the Independent Member.

The Deputy Director of Finance submitted a report to the Audit and Risk Committee which provided an update on the progress of the statement of accounts and external audit for 2020/21 and 2021/22, and the decision of the Monitoring Officer to appoint Bipon Bhakri as an Independent Member of the Committee.

The Committee was recommended to note the contents of the report including the progress of the external audit, and to support Mr Bipon Bhakri in his role as the Independent Member.

The Chair welcomed Mr Bhakri (Independent Member) to the meeting. Members agreed with the recommendation to support Mr Bhakri in his new role.

RESOLVED:

The Audit and Risk Committee welcomed Mr Bhakri to the meeting and resolved to support him in his role as the Independent Member.

The Head of Finance presented the report and Members noted the following points made:

·         National issues around the valuation of infrastructure assets had delayed the closing of the 2020/21 accounts. However, the delay had no impact on the resources the Council had available and was an accounting adjustment.

·         In addition, the Government had delayed issuing the ‘Whole of Government Accounts’ return further impacting on the 2020/21 accounts.

·         Statements for 2021/22 would be impacted by the same issues, and it was not known when the accounts would be completed.

The External Auditor then presented the Leicester City Council audit progress report and sector update

·         As a point of clarification, the external auditor confirmed there was now a signed opinion for the 2021 accounts. The annual auditors report had also been issued. It was also noted that the authority would fall under the Whole of Government accounts as it fell under the threshold required by Government.

·         Apart from the valuation of infrastructure assets the External Auditors would be in a position to certify the audit closed.

·         Members were reminded that initial planning for the 2021/22 audit was taken to the Audit and Risk Committee meeting in March 2022, with the audit plan being taken to the Committee in July 2022.

·         External auditors confirmed the statutory publication of accounts for the Council had moved to the end of November. Overall external auditors were on track to hit that deadline apart from the matter of infrastructure assets.

·         However, in terms of value for money there was one issue in that the Code of Audit Practice had not changed, and the Auditor’s Annual Report should have been issued in September, but it was recognised that all auditor firms had to concentrate on completing statutory statement of accounts.

·         With the report there was a value for money extension letter written from the external auditor with the deadline for the report being by 28 February 2023.

·         With regards to the overall controlled environment, for journal entry controls there was a continuing issue around authorisation. The Council were aware of the risk, and there was additional testing to mitigate risk.

·         In relation to infrastructure assets, they were accounted on the balance sheet as historic cost, but there was an issue that all councils were facing on derecognising components of infrastructure when replaced, which gave rise to potential material misstatement and possible disqualification of accounts. The government have considered the issue and are preparing to provide a statutory override to normalise the position across the country. External auditors would wait for the statutory override before issuing an audit opinion, expected in November 2022.

·         External auditors had been reviewing information technology controls. There were elements of weakness, mainly around the general controls and the ability people had to have generic use of accounts, and administrative access to various systems. On Unit-4 (General Ledger) in particular, management had concluded staff did need those rights so was a risk to tolerate. External audit would audit around that. Appendix A to the report provided a management response to the IT audit.

Members were given the opportunity to ask questions, and the following responses were given:

·         It was asked if the Government’s deferred deadlines were affecting external auditor’s work. It was responded that as a firm, audits were taking a little longer, and there were some clients that were struggling themselves, but there was a plan in place to deliver the majority of audits by end November 2022. The infrastructure asset was a challenge for all firms, but it was not believed there would be impact on delivering an audit opinion to the council.

·         With response to the difficulties and challenges in the economic market and with regards to the value for money opinion for 2021/22, it was recognised there were challenges around salary, inflation and cost increases that would be impacting councils, and would be picked up as to how the council authority would respond to but recognised it was outside of the council’s direct control.

·         It was noted the statement of accounts were backwards looking as at the end of March 2022. A conversation would be had with the council as to how resilient they were to the changes in the economy. There was nothing to bring to the attention of Members, but the position would be monitored.

·         Management response to the journal entry controls was referenced. It was asked what the risk appetite of the Council was in terms of accepting or mitigating risk, and what the detail of the volume or value was so that Members could understand the level of risk.

·         Also the information technology controls were reference with the same question as to what the management response was to the risk.

·         External auditors would interrogate their findings and provide a figure for the volume of journals going through the system to Members. With regards to risk appetite, a conversation had been had with finance, there were mitigating controls in place with a full test of journals on a monthly basis, where high risk journals were identified and pulled, with the rest put through risk categorisation and sampled to ensure they had been processed correctly. A report would be provided at a future meeting for Members.

·         It was noted with regards to journals that information provided would be a very significant figure, as council tax transactions were also put through as journals. It was noted that every month senior accountants had to review those journals and sign them off.

·         With the IT there were system admin people that required full access to systems to resolve people’s problems. The Chief Accountant would review to ensure that system admin people were not doing any transactional works.

·         Now the independent member process had completed, the effectiveness of the Committee would now be looked at and reviewed.

·         With regards to infrastructure assets in terms of the national picture, auditors were not comfortable with that but recognise it was a sector issue. Given the nature of those assets they were historic costs. It was recognised there was a de-recognition issue which required government intervention. External auditors were comfortable that the Highways department had all of the information available to the council to manage those assets.

·         With regards to IT, it was noted there was a deficiency. Members were informed the council would always be managing risk, and if it was a big deficiency there was high potential for things to go wrong. The external auditor’s perspective was it could not be ignored, but it was acknowledged that it could be tolerated with people requiring access to the systems with mitigations in place. The risks had not gone away, but Members had to be comfortable with the level of mitigation and control of the risk.

·         The levelling up white paper was tabled at the February meeting, and it was asked if there was an update. External auditors informed Members that as a firm it had an active advisory team that led on local government, and the report contained comment on the proposals that had come out in February 2022. Since that time there had been significant change in the political landscape, and it was not known what the Government would propose with regards to the direction it would go policy wise.

The Chair thanked the officer for the report and noted its contents.

RESOLVED:

1.    That the Audit and Risk Committee note the contents of the report.