Agenda item

The External Auditor submits the ISA 260 Report to Those Charged with Governance, a report which summarises the key findings of the 2016/17 audit of Leicester City Council, the Auditor’s assessment of the Council’s arrangements to secure value for money (VFM), and the requirement for Members to authorise the Director of Finance to sign the letter of representation to KPMG from the Council.

The Audit and Risk Committee are asked to note the report and approve the letter of representation.

Details of the Annual Governance Report will be circulated to Members of the Committee as soon as they are available.

Representatives of the External Auditor, KPMG, presented the Annual Governance Report, known as the ISO 260 Report to Those Charged with Governance.  This included the key findings arising from the audit of Leicester City Council’s financial statements for the year ended 31st March 2017, along with the Auditor’s assessment of the Council’s arrangements to secure value for money (VFM) in its use of resources. 

Members also were advised of the requirement for them to authorise the Director of Finance to sign the letter of representation to KPMG from the Council in connection with the audit of the Council’s financial statements.

Members were reminded that this report had been circulated separately to the agenda prior to the meeting.

John Cornett, Director at KPMG LLP (UK), introduced the report, explaining that KPMG intended to issue an unqualified opinion on the Council’s financial statements for the year ended 31 March 2017.   

Mr Cornett then made the following comments:

·           The conclusion that the Council had proper arrangements in place to secure VFM did not mean that this had been achieved;

·           The matters listed on the second page of the report as outstanding were normal at this stage;

·           The report highlighted a significant audit risk due to significant changes in pension liability, due to the Triennial Valuation of the Local Government Pension Scheme;

·           New rules had been introduced by the Chartered Institute of Public Finance and Accountancy (CIPFA) which gave auditors flexibility in how they presented income and expenditure statements.  As those for 2016/17 therefore had been prepared in a new format, the income and expenditure statements from 2015/16 had been reorganised, to enable comparisons between that year and 2016/17 to be made;

·           Draft financial statements for the year 2017/18 had been produced to a high standard.  The help and support of the City Council’s Finance team with this had been appreciated;

·           A risk regarding the introduction of a new financial ledger was that the 2015 Council Audit Regulations now required the Council’s accounts to be produced by the end of May each year and audited by the end of July.  This change in dates could make it difficult to prepare the accounts in time for presentation to the Committee in the summer of 2018;

·           Attention was drawn to the recommendation made to address that the authority did not perform a periodic check of users’ access rights to systems in order to ensure that access privileges were appropriate;

·           A qualified opinion had been given in the report’s conclusion about VFM due to the findings of the inspection by the Office for Standards in Education (Ofsted) of Looked After Children services.  However, in view of the improvements made in those services and the outcome of Ofsted’s re-inspection earlier in 2017, this qualification could be lifted;

·           In 2016/17 two Councillors did not return their annual related party declarations. One of these was no longer a Councillor and the other had not returned an annual statement for at least three years;

·           Ongoing action plans were in place in relation to previous recommendations that had not yet been fully implemented;

·           All non-audit work undertaken by the auditors for the Council had been declared;

·           An additional fee would be payable to the auditors, due to further work required in relation to the CIES restatement and the triennial pension revaluation.  The figure had not been agreed yet, but would be reported to the Committee when it had been determined; and

·           All of the matters included in the report had been reported to the Committee during the year.

Members expressed concern that one Councillor continued to not return their annual related party declaration, as the making of this declaration was a statutory requirement.  Officers confirmed that attempts to contact the Councillor concerned had been made using various communication methods, but no response had been received.  Mr Cornett confirmed that, as failure to return the declaration was not prevalent across the Council, it did not impact on the value of the Council’s accounts.

The Committee noted that processes for the periodic reconciliation of the total and individual balances in Housing leaseholder accounts were being developed and would continue to be improved, (prior year recommendation 2, “Leasehold accounts – housing”, set out in Appendix 2 to the report, referred).  It was anticipated that sufficient information should be available by the end of the current financial year to determine why different amounts were appearing in the total and individual balances.

In response to the prior year recommendation that when a user ceased employment access should be revoked from applications, networks and databases through which access to programs and data was possible, officers confirmed that the Council’s information technology staff had identified 31 March 2018 as the date by which this would be fully implemented.  (Recommendation 3, “Leavers – Access removal (Network)”, set out in Appendix 2 of the report, referred.)

Members were reminded that a recommendation previously had been made that the Council’s information technology password policy be changed, to require users to change their password after a specified number of days.  (Prior year recommendation 4, “Passwords – Authentication (Network)”, set out in Appendix 2 to the report, referred.)  However, the Council felt that it operated a strong password system, in line with recommendations by CESG that passwords were made less secure by changing them frequently.  It was recognised that the Council’s policy could need updating so this would be followed up.

It was noted that, in response to prior year recommendation 6, “Journal Controls”, (set out in Appendix 2 to the report), a workflow was being introduced that would require every journal to be signed off.  This would be implemented during the 2018/19 financial year, so would still be outstanding in the 2017/18 External Audit report.

The Committee welcomed the outcome of Ofsted’s re-inspection of services for Looked After Children and noted that, although significant progress had been made in improving management arrangements for those services, further work was required.  It was recognised that a risk was that progress would stop or be reversed.

RESOLVED:

1)    That KPMG LLP (UK) be thanked for their work;

2)    That the Chair write on behalf of the Audit and Risk Committee to the Councillor who continued to not return their annual related party declaration, giving that Councillor two weeks to respond;

3)    That, if no response to the letter to be sent under resolution 2) above is received within the two week deadline, the Monitoring Officer be asked to look in to the matter and take appropriate action;

4)    That the ISO 260 Report to Those Charged with Governance be received and noted;

5)    That the unqualified opinion given by KPMG LLP (UK) on the Council’s financial statements for the year ended 31 March 2017 be welcomed; and

6)    That the Director of Finance be authorised to sign the letter of representation to KPMG from the Council in connection with the audit of the Council’s financial statements.