To note the Provisional Audit Plan for year end 31 March 2021 (report of EY enclosed).
Consideration was given to the 2020/21 External Audit Plan, produced by EY.
The Assistant Director Finance introduced the report and confirmed that the Plan set out the intended approach by EY for the 20/21 audit of the Statement of Accounts.
In a year of such change and turbulence, there were some key messages which would provide assurance to the Committee about consistency in EY’s approach to the prior year.
· Materiality – The same basis (gross expenditure) had been used as in the prior year, so there was a consistent level at which EY could both identify material errors and report any audit differences to the Committee at the Conclusion of the audit. It was currently based on the expected Gross Expenditure (last set of accounts), but would now be updated for the draft financial statements provided for audit.
· Audit Risks – Members could take great comfort from the consistency in the risks from the previous years, as illustrated by the yellow highlights within the report. This reflected a normal audit year. There were a number of new risks, highlighted red, which reflected the impact of Covid 19 on financial reporting and hence auditing, in respect of:
a) Government Grant received;
b) Bad Debit provision – an increase in Debtor Balances was expected;
c) NNDR appeals provision – a higher level of appeals, and hence provision was expected;
d) Collection Fund accounting – in respect of Council Tax collection rates and impact of three year smoothing impact within Government proposals
· There was also one new risk for the introduction of the new payroll system, given the material nature of the transactions which passed through it.
· Section 2 gave further details against each of these risks.
· VFM – The NAO had that year updated the Code requirements. The impact was three-fold:
a) Risk Assessment – the criteria of what was a significant risk had been amended;
b) A positive conclusion (i.e. arrangements were adequate) was no longer provided with the Audit Report. EY would only report by exception if arrangements were not adequate.
c) A commentary in a new Annual Auditors Report (which replaced the Annual Audit Letter) had to be provided, on EY’s view of the Council’s arrangements against the criteria, and how they arrived at their conclusion (exceptions or no exceptions).
· A Risk Assessment had not yet been completed, and would be reported at a future Committee.
· Audit Fees – EY had reported on the same premise as in 2019/20 what they believe was the fair fee to complete the audit of South Holland’s size and complexity. The Scale fee was set formally by PSAA and then the additional level of fee that EY believe was necessary to perform a quality compliant audit to the Code requirements. This additional element was with PSAA for determination in respect of both 2019/20 and 2020/21.
Members considered the Audit Plan, and the following issues were raised:
· Members asked whether there was a ‘random’ element to the scoping of the group audit – auditing some areas unexpectedly would increase robustness across the Authority.
o The Assistant Director Finance advised that she would obtain a response to this question from EY.
· Members commented that they strongly supported the new inherent risks detailed within the Overview of the 2020/21 audit strategy.
· It was important for the Committee to confirm that it had a full understanding of agreement to materiality and reporting levels.
· With regard to Fees detailed within the report, members understood that it was difficult to know ahead of time what work was required, but the fees had jumped greatly. The potential for each year’s fees was left too open.
o The Assistant Director Finance advised that she took on board these comments however, the Authority was bound by the National Procurement Exercise which was undertaken and agreed 4 years ago for appointment of external auditors. She was mindful that this was an ongoing concern of the Committee and would take this forward.
a) That the 2020/21 External Audit Plan be noted; and
b) The Committee confirmed its understanding of agreement to the materiality and reporting levels.