Update report by Ernst Young (enclosed).
The Associate Partner (Ernst & Young) noted that it was unusual to present both the Audit Plan and Audit Results report on the same agenda. Due to the unusual circumstances of the year caused by the Covid pandemic, this was the first opportunity for presentation of the Audit Plan. The Audit Plan set out the Audit risks to be addressed, and were equally shown in the Audit Results report, and it was therefore agreed that the two reports be presented and discussed together.
There had been a number of constraints, with the Council’s budget being prepared by Council officers during lockdown, and the whole audit process had been undertaken remotely. There had also been additional financial reporting requirements involving additional procedures, as a result of Covid-19, around property, plant and equipment valuations, pension valuations and the going-concern concept. Auditors were working to a materiality level of £921,000 for the Council.
The following Audit Risks were explained, and were set out in both the 2019/20 Audit Plan and the Audit Results Report:
· Fraud risks- The risk could be that management could override controls and financially mis-report the position of the Council as at 31 March, and through the incorrect capitalisation of revenue expenditure. Auditors had found no evidence of this, and this was a key assurance for the Committee to note.
· Property, plant and equipment valuation– this would be a key risk in any normal audit year, but was heightened this year by the Covid pandemic, and the fact that the balance sheet date of 31 March 2020 was in the middle of the first lockdown period. This was key for assets valued at fair value. The Council had a relatively high level of investment property valued at fair value and the assets therefore had to be considered specifically, and the valuations tested upon which they were set within the financial statements. Auditors were awaiting sample documentation to complete procedures in this area and would expect some additional disclosures to be made in the set of accounts as a result.
· Pension liability on the balance sheet – There were two audit-related issues being focussed on: 1) National remedy to the McCloud issue (an employment equalisation of pay issue last year) – there had been a remedy in July this year, and this remedy had changed some of the assumptions built into the actuarial model behind the liability; 2) Value of investments assets in the Lincolnshire Pension Fund and how these were valued within the actuarial model – assurances had been received from the Pension Fund auditor, which showed that the fund was understated by £12million at 31 March. SHDC’s share of this was only £330,000, but this would reduce the liability showing within the draft financial statements. As a result of these two issues, officers had requested an updated actuarial valuation in order to assess the impact on the Council’s liability, and to reflect this appropriately in the revised accounts. Ernst and Young were awaiting this updated report.
· Non-domestic rate appeal provision ... view the full minutes text for item 14