The Committee is asked to note the reports.
Sophie Morgan-Bower, Senior Manager, Grant Thornton (GT) presented the report which informed the Committee of the key matters arising from the audit of Gloucestershire County Council’s financial statements for the year ended 31st March 2022.
The 2021/22 audit had continued to present a number of issues, in light of the Covid 19 pandemic and the report reflected the additional challenges for GT and the Authority in undertaking their respective responsibilities. The expectations of the regulators had grown year on year, therefore it was essential that GT were doing appropriate work to address the issues raised.
The External Audit had not identified any significant matter during the audit. GT were awaiting further instruction from the National Audit Office (NAO) and explained that working remotely had created issues and the hybrid working arrangements would help to overcome these issues. GT wished to thank the Finance Team for all their efforts that had enabled the audit to progress well.
Members were advised that GT had not completed all of its VFM work and were not in a position to issue their Annual Auditor's Report 2021/22. A letter detailing the VFM position was also presented to the Committee. The aim was to issue the Auditor's annual report by 31st January 2023. This was in line with the National Audit Office's revised deadline, which required the Annual Auditors Report to be issued no more than three months after the date of the opinion on the financial statements.
It was reported that GT had substantially completed the audit of the financial statements and subject to outstanding queries being resolved they hoped to issue an unqualified opinion on the accounts by the end of January. There were no significant areas of weakness reported, although one valid objection, which was under review regarding the Council's definitive map.
As the audits had been conducted remotely, this resulted in an increase in the fees and these figures would be confirmed in January. During the discussion, it was agreed that the previous year audit fees should be included for transparency. (Action - GT)
In terms of the valuation of land and buildings, it was explained the council revalued these assets on a rolling basis and represented a significant estimate by management in the financial statements due to the size of the numbers involved and he sensitivity of the estimate to changes in the key assumptions. Officers explained the problem occurred in that asset lives were short, as such management needed to revisit the fixed asset register to ensure they were not materially different to the current value.
It was reported there was a national issue affecting the valuations of infrastructure assets within the accounts, members were advised this was a national issue as most councils did not have sufficient data available. Which had resulted in councils inadvertently replacing assets, which had a positive on accounting. CIPFA were considering a solution in the form of a statutory override, if approved it would take infrastructure outside the scope of the audit. This requirement would potentially come into force on Christmas Day 2022. It was noted that the account certification for 2021 was still outstanding due to the national infrastructure issues.
In terms of the management override, it was noted that there were no SAP errors, it was a question of the risk, therefore more checking was undertaken. This issue would be resolved when the new SAP system would be installed in December 2023. The external auditors confirmed the issues relating to journals would continue to be in 2022/23 audit findings report, due to the timing of the replacement SAP system, and the accounting period ending on the 31st March.
In response to a question relating to manual journals and the lack of descriptions, members were advised that the current SAP system did not have the ability to make the description feed mandatory. The Committee were informed that school valuations considered the number of children on roll and these were produced by specialist valuers.
Members were advised that Private Finance Indicatives (PFI) assets were valued at zero in the accounts, and this was a best practice point for management. It was a challenge rather an error to review the asset life. The PFI Assets were noted as the Energy from Waste and Joint Fire assets.
The Chair suggested an explanation on how they're valued and described in the accounts would be useful. The Committee felt it was important to know the value of assets, officers explained that it was important to have the correct asset values for accounting purposes and it wouldn't affect budgetary conditions on a day to day basis.
The Committee discussed materiality levels and members felt the public would have a considerably different view of the deficit not being material compared to the auditor's view. The Auditor appreciated the challenge and explained that the materiality level was set at 1.5% of gross spend but they also accepted the public's view. They reassured the Committee that if they had concerns over the number of amendments they would have robust talks with management, and they also had the right to raise any concerns with the Chair of the Committee too.
In terms of the Pension Fund Audit, it was noted that it substantially complete, subject to the Letter of Representation, Annual Report and the final opinion. GT expected to issue an unqualified opinion.
In terms of materiality for the Pension Fund this was set at £32m, given the value of the fund, it was noted there were no findings to report. Members were advised that 'Service Audit Reports' for some of the fund managers were below materiality, this was common place and other testing procedures were undertaken if necessary.
In terms of the Pension Audit Findings, it was reported there was no material misstatements and management had provided supporting evidence for the actuary's assumption of CPI +0.3%. It was explained that GT used their own external expert who assessed the actuary's assumption. The Committee accepted that different actuaries would have different assumptions and opinions.
That the reports be noted.