Agenda item

Report to those charged with Governance

Report of Ernst & Young LLP.

Minutes:

Steve Clark, Ernst and Young LLP, explained that the document presented concluded the first year of Ernst and Young’s appointment as auditors to the County Council and Pension Fund. Thanks were expressed to the County Council’s team in supporting the process. Overall the audit had gone well. He highlighted in terms of the opinions, an unqualified audit opinion was being issued in both financial statements in accounts terms and the value for money statement. This did not happen everywhere. Once the Committee had approved the accounts and the letters of representation the accounts could be signed. The auditors had not received any objections from members of the public and there were no unadjusted audit differences. There had been a number of audit adjustments, the major one relating to the PFI scheme which had been explained in detail earlier in the meeting by the Chief Accountant. In terms of materiality, the level to which the audit work was focussed had been discussed with the Committee previously and was referred to in the report under the scope and materiality section and there was no change to this. The external auditors had initially identified two significant risks, the risk of management override and the risk of revenue and expenditure recognition. These were standard significant risks identified in any audit of any organisation. As a result of going through the detail of the PFI, the PFI had also been classed as a significant risk because of the level of focus on this. This matter had been dealt with however and it was not anticipated this would be an issue in the future. The other area of significant work undertaken was in relation to value for money. A number of procedures had been undertaken to understand the arrangements that the County Council had in place to secure value for money. The external auditors had examined a number of things specifically related to the BCF up until the 31 March 2016 and the auditors had concluded that they were satisfied with the arrangements that the County Council had in place.

 

Mark Surridge, Ernst and Young LLP, explained that the audit had commenced with two significant risks over the financial statement. The extent of the work that the external auditors planned to perform in relation to the significant risks was set out in the report, and the Committee could take assurances from work that the external auditors had undertaken. Assurance was given that there was no issues to report in relation to the significant risk that management may override controls and manipulate the financial statement in a way that they should not. Secondly,  regarding the significant risk around expenditure recognition which was essentially the undercounting of expenditure to manage the financial position incorrectly,  a variety of procedures had been undertaken to give the Committee assurance that the expenditure in the financial statement was not materially misstated. The PFI work was very technical and took time to conclude due to the nature of interpretation and judgement required. There were some adjustments to the accounts but none of the adjustments impacted on the County Council’s general fund as they were all financial reporting technical adjustments that mostly moved figures around the accounts but did not affect the overall financial resilience of the organisation.

 

A Member referred to the Governance Statement which had stated that to achieve savings and do more and better for less, a Challenge Board had been set up including the Deputy Leader, Chief Executive and Director of Finance and Resources. This Board was responsible for finding savings and value for money. The auditors’ key findings however identified significant risk that insufficient arrangements were in place to identify savings to bridge the financial gap. It was queried if the present arrangements were insufficient or if the governance system was working well in finding these savings?

 

It was explained that because of the scale of the savings that the Council was working towards and the challenges that the Council faced this had been identified as a significant risk that the Council may not have had arrangements for. The auditors however had looked at the arrangements in place and operating up until the 31st March 2016 and concluded that the arrangements were adequate at that point in time.

 

The Member raised concern that the term insufficient had been used and the auditor clarified that the information meant that there was a significant risk that the arrangements may not be in place. Further work was undertaken to determine if the arrangements were adequate and the auditors believed that they were. This did not mean that there was not a significant risk but that the arrangements in place were adequate.

 

Caroline Davies, Ernst and Young LLP, discussed the high level messages in the audit report for the Pension Fund. At the time of writing the auditors were awaiting the Pension Fund’s Annual Report which had now been received and it was anticipated that audit procedures would be completed in time for the Pensions Committee in October. There were no unadjusted differences that auditors wished to present. There were however two minor changes to the statements, one in regard to the contributions and one in regard to an updated valuation. One significant risk had been identified which was in relation to management override and there was nothing the auditors needed to bring to the Committee’s attention regarding the work undertaken on that particular risk. One further risk was identified in regard to the valuation of complex investments which were more judgemental in nature, for example hedge funds and private equity. The detailed work to give assurance in this area was detailed in the report and there was nothing that needed to be brought to the Committee’s attention.

 

In response to a question in respect of BCF income, the Director of Finance and Resources reported that the Council was still in an escalation process with the Department of Health around the BCF. Nothing had been received through the BCF in the current financial year and the Cabinet had therefore put in place controls on non essential spending to compensate. The resolution of the escalation process had not concluded but from a financial planning point of view a Cabinet report, which had been Called In by scrutiny, identified a series of savings to compensate if the money was not received going forward. There were £4 million in savings in the current year, rising to £14 million in a full year. Financially the assumption was that the County Council would get nothing out of the BCF after the current financial year because it was prudent to do so, but if the escalation did secure some money for the Council this would enable money to be put back into the Council for health and care or other priorities. Over the medium term the Sustainable Transformation Plan process was the mechanism in which the Council, in accordance with national guidance, could get greater NHS contributions towards adult social care.

 

In response to a member question in respect of whether the council tax increase had been sufficient to cover the shortfall in funding from the health economy the Director of Finance and Resources clarified that the extra 2% on Council Tax was the Staffordshire taxpayers contribution to  adult social care. This was separate to the BCF monies which were intended to be the the NHS contribution towards adult social care.

 

Resolved: That the Committee

·         Note the Staffordshire County Council Audit Results Report – ISA (UK and Ireland) 260 for the year ended 31 March 2016.

·         Note the Staffordshire Pension Fund Audit Results Report – ISA (UK and Ireland) 260 for the year ended 31 March 2016

Supporting documents: