Agenda item

To consider the Indicative External Audit Plan and Strategy for the year ending 31 March 2026 (report of the Director - KPMG enclosed).

Consideration was given to the report of KPMG which provided members with the indicative External Audit Plan and Strategy for the year ended 31 March 2026.

The Audit Manager (KPMG) introduced the report with the following key points:

• Materiality: which for the financial statements had been set at £1.95 million for the group, equivalent to 2.5% of forecasted group expenditure. Performance materiality was set at £1.46 million, with an audit posting threshold of £97,500, above which all statements—corrected or uncorrected—would be reported to the Committee;
• Significant risks: included valuation of land and buildings noting changes arising from the revised CIPFA Code requiring valuations on a five?year rolling basis rather than annually; and management override of controls however no significant risk had been identified;
• Other audit risks: included the valuation of post?employment benefit obligations.
• The value?for?money risk assessment had not identified any major concerns; and
• The plan was indicative at this stage and that the finalised version would be circulated to members, with any changes clearly highlighted.

Members considered the report and made the following comments:

• Members queried why internal valuers were used for general fund assets while external valuers were used for council dwellings.
  • The Head of Finance Delivery – Technical and Corporate (PSPS) advised that external valuers were engaged for the Housing Revenue Account due to the specialist nature of those assets and their expertise in the housing market.

• Members raised concerns about the limited detail within the efficiency plan referenced in Cabinet papers and asked whether upcoming audit work was on track.
  • The Director of Finance responded that:
    • Savings for 2025–26 were being delivered, a surplus was expected for the financial year, and savings for 2026–27 had already been identified with no in-year efficiency requirement; and
    • An audit of savings monitoring was nearing completion, with an improvement anticipated, though further work would be required to demonstrate full assurance.
  • The Internal Audit Manager (LCC) confirmed that the audit covering monitoring of savings was on track. Whilst the upcoming draft audit report would acknowledge that policies, procedures and controls were in place, a limited assurance could only be provided until the outcome of such measures were known.

• Members sought clarification regarding the management override of controls risk and whether sufficient safeguards were in place.
  • The Director of Finance stated that no significant concerns had been identified and that controls were kept under continual review to ensure their adequacy.

• Members asked whether Internal Audit engaged in ongoing dialogue with External Audit beyond mandatory annual enquiries.
  • The Audit Manager (KPMG) confirmed that regular discussions took place throughout the year and that any significant findings would be promptly shared.

• Members questioned the reduced risk rating relating to post?retirement benefit obligations, given global instability affecting pension markets.
  • The Audit Manager (KPMG) advised that the assessment was based on the latest triennial valuation and actuarial assumptions reviewed by specialists, and that the risk rating would be revisited if new information emerged during the audit.

• Members queried how property valuations were updated following improvements to council dwellings.
  • The Head of Finance Delivery – Technical and Corporate (PSPS)  confirmed that valuers had access to expenditure information as part of the HRA business planning process and that this was incorporated into valuation updates.

• Members requested information regarding responsibilities around the selection of valuation indices under the revised CIPFA methodology and whether recent changes reflected errors or legislative updates.
  • The Audit Manager (KPMG) explained that the methodology change was due to updates in the CIPFA Code, with internal valuers responsible for selecting appropriate indices.

• Members referred to the low-level recommendation made to management in previous years regarding the inclusion of Group figures and queried why the risk had been tolerated rather than addressed. 
  • The Audit Manager (KPMG) stated that the stance taken depended on management judgement and materiality, noting that the subsidiaries were not financially significant enough to require separate reporting.

• Members referred to page 21 of the report, regarding the lack of ‘formal programme in place to effectively identify, RAG rate and/monitor savings’ and queried whether the commentary was common across partnership authorities due to the same services being outsourced across the three councils.
  • The External Audit Manager (KPMG) stated that similar findings had been identified across all partnership councils.

• Members expressed concern that equality and human rights considerations within reports could be treated as a formality rather than substantive analysis.
  • The Director of Finance responded that report drafting involved a rigorous review process and that members were encouraged to challenge any omissions.

• Members noted that the Value for Money assessment had not highlighted any significant risks and asked whether any issues had been identified
  • The Audit Manager (KPMG) stated that any risks identified under the criteria of governance, financial sustainability, and efficiency would be reported to the Committee.

• Members queried the timescale of the independent review of the finance service delivery arrangements provided by PSPS and whether any changes were expected.
  • The Director of Finance advised that PSPS had implemented most actions arising from previous findings and that significant additional changes were not anticipated.
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AGREED:

That the Indicative External Audit Plan and Strategy for the year end ended 31 March 2026 be noted.