To consider the external auditors audit finding report for the year ended 31 March 2019.

The chairman of the committee introduced the item by highlighting that a supplement had been published the previous day.    The pressure on the external auditors and officers was appreciated but the committee would not like this to be seen as a precedent and requested that the external auditors and officers could consider how this report could be provided in reasonable advance of the meeting in future.   In order to give the committee time to read the supplement, the meeting adjourned at 10.53 am and re-commenced at 11.23 am.

The external auditors, Grant Thornton, presented the report and indicated that any page numbers referred to would be those in the supplement which had been published the previous day. 

Grant Thornton requested that the first paragraph on page 13 of the supplement issued should be disregard as it was a typographical error.   The rest of the references in the audit findings report were accurate.   Grant Thornton apologised for the error which had not been picked up as part of their quality assurance process.

Grant Thornton outlined the statutory role of the committee and that the level of reporting was necessary in order to comply with auditing standards.    

Grant Thornton reported that they could not certify the completion of the audit.  This was for the same reason as the last 2 years.   Progress had been made on the issue but it cannot be resolved at this moment in time. 

Grant Thornton could not issue the value for money opinion.    This related to work which SWAP were undertaking and it was anticipated that this would be resolved by time of the September meeting and a revised audit findings report would be re-issued.    It was confirmed that there was no statutory deadline for issuing the value for money opinion. 

The materiality basis had changed from council expenditure to asset base which was to resolve the issues with materiality in previous years.   Grant Thornton confirmed that there would have been no matters reported under the previous materiality levels so moving the materiality levels had not had an impact on the audit. 

In discussion of the item, the following points were raised:

·         The de minimis level of accruals had been moved which now meant that the accounts were more accurate;

·         The valuation date of assets had moved so that it was closer to end of the financial years.   This meant that the estimates at year end were more accurate.

·         The council had amended the accounts to take in account the McCloud judgement.   The McCloud judgement was in relation to pensions and liability and was as a result of the government losing a legal claim.    It was noted that the McCloud judgement was subject to further legal challenge and reviews but nationally auditors had come to the conclusion that the liabilities should be reflected in the statement of accounts.  It was noted that Herefordshire was a member of the Worcestershire Pension Scheme and not the Herefordshire and Worcestershire Pension Scheme.

·         The Hoople pension issue was now reflected in the statement of accounts.     The Hoople pension liability had always been the council’s as a guarantee had been given when Hoople had been created.    This provided clarity to the Hoople pension position and contribution rates.   The liability had previously been reflected in the Hoople accounts.   

·         The auditors reported everything above triviality.   The auditors look at everything above triviality and below materiality and if there are a series of transactions which resulted in a breach of the materiality level, then it is treated as material and reported to the committee. 

·         On page 26, the committee needed to be comfortable that the unadjusted items were below materiality. 

·         It was confirmed that there would a lessons learned exercise in order to resolve the number of presentational issues reported.    Every year, CIPFA issue guidance and the objective was to get a set of accounts which was as readable as possible for members of the public.   

·         It was noted that the waste loan was the council’s largest loan under a private financial initiative (PFI) but that the council was also a lender to the arrangement. 

·         Hoople do have an independent external auditor.   As it was a separate entity their auditors reported to their shareholders and would not report to the committee.   The chief finance officer agreed to prepare a briefing note which set out the governance relationship for Hoople and why it was outside of the remit of the committee.   The briefing note would also include details of the health employees and how their pension liabilities were dealt with. 

SWAP and Grant Thornton were thanked for their work over the last financial year. 

RESOLVED

That the report of the external auditor was considered.