Agenda item

To receive a progress report from the External Audit Manager - KPMG (enclosed).

Consideration was given to the report of the Director KPMG which provided the committee with an External Audit Progress Report for the year ended 31 March 2023.  

The External Audit Manager (KPMG) introduced the report and the following main points were highlighted:

• KPMG wished to express gratitude to the Deputy Chief Finance Officer (PSPS) and the Finance Manager – Corporate (PSPS) for their continued engagement throughout the process;
• Following receipt of the draft financial statements, an increase in materiality levels had been made due to actual expenditure exceeding the forecasted expenditure;
• The wording of ‘significant risk’ had been refined which distinguished between two different valuations undertaken as at 31 March 2024 in relation to the valuation of land and buildings;
• A new significant audit risk to the group had been identified in respect of the valuations of investment properties held by Welland Homes;
• Regarding significant audit risk:

o   The testing of significant assumptions used in the valuation of land and buildings (BCIS indices, location factor and obsolescence factors) were found to be neutral;

• • The testing of significant assumptions used in the valuation of council dwellings (adjustment factor and comparable transactions for beacon values) were found to be neutral;
  • The testing of management override of controls were found to be satisfactory;
  • The testing of the valuation of post-retirement benefit obligations were found to be balanced; and
  • In respect of Group Risk, the testing of the valuation of investment properties were found to be neutral;
• An uncorrected audit misstatement had been identified and reported to management however the audit opinion would not be affected should the misstatement remain uncorrected;
• No corrected audit misstatements had been identified;
• Four audit disclosures misstatements had been identified and reported to management. These were to be corrected for the financial statements;
• No significant control deficiencies had been identified;
• Four medium and four low-level recommendations had been discussed with management, for which a management/responsible officer response, and due date for implementation, had been agreed; and
• All outstanding matters were detailed on page 9 of the report.

Members considered the report and made the following comments:

• Members referred to ‘control deficiencies’ on page 26 of the report and noted that bank reconciliations had not been completed on a timely basis and that a duplicate payment had not been identified. Could assurance be given that this would now continue to remain on track.
  • The Chief Finance Officer (PSPS) responded that:
    • All reconciliations were up to date as at September 2024;
    • When the bank statement reconciliation backlog was identified, management action was immediately introduced to deal with historical matters;
    • A Key Performance Indicator (KPI) was introduced to the finance service level agreement which monitored monthly bank statement reconciliation completions;
    • Payroll and bank reconciliation completions were now reported to the Senior Leadership Team;
    • The increased management oversight of the matter and enhanced internal processes would serve to identify any issues at an early stage;
    • A bank reconciliation internal audit had taken place, the findings of which would be reported to the committee at its 30 January 2025 meeting. A number of recommendations were to be proposed within the report regarding policy, procedures and training; and
    • The council was in the process of raising a debtor invoice to recoup the identified overpayment.

• Members referred to ‘audit misstatements’ on page 25 of the report, and queried whether note 33 in respect of related parties indicated a control issue.
  • The Chief Finance Officer (PSPS) responded that this point related to transactions to parish precepts and internal drainage boards. Previously these would have been disclosed as appropriate, due to the level of influence held by the member. The policy was to be redefined to clarify items that would be disclosed in future.

• Members referred to the ‘control deficiencies’ on page 27 of the report, and queried when the last revaluation of property floor space was undertaken and whether a timeline had been agreed for the implementation of the recommendation.
  • The External Audit Manager (KPMG) responded that requested information regarding floor areas for a number of properties was outstanding. Should the information not be provided, a remeasuring exercise would need to be undertaken by the council or internal valuer. Submission of the data was requested as soon as possible so that the recommendation could be completed; and
  • The Chief Finance Officer (PSPS) added that a change of process for property valuations, from external to internal valuers, had taken place from 2022/23 to 2023/24 and that the outstanding records were held by the external valuers. Engagement with the internal responsible officer was in hand.

• Members queried the potential impact upon the 2025/26 triennial review of local government pension schemes following the recent announcement by central government to encourage the merging of local government pension funds. 
  • The External Audit Manager (KPMG) would refer the query to the external audit team’s pension expert and report back at the next meeting.

AGREED:

That the External Audit Progress Report 2023/24 be noted.