Agenda item

Report CEO 1619

Mr Phil Johnstone and Hannah Andrews from KPMG attended the meeting to update on this report, and to answer any questions. KPMG had been appointed as the new external auditors. The report had been submitted for the attention of the Audit Sub Committee so that they could review the external auditor’s annual plan arrangements for 2015-2016.  `

Mr Johnstone commenced by outlining the matters of Materiality and Significant Risks. It was noted that materiality for planning purposes had been set at £9.3m for the Council and £7.4m for the Pension Fund. (In determining the relevance of financial information, regard needs to be given to its materiality. Information is said to be “material” if omitting it or misstating it could influence decisions that users make on the basis of an entity's financial statements).

Significant Risks had been identified as:

·  Risk of fraud in revenue recognition

·  Management override of controls

·  Valuation of property, plant and equipment

·  Valuation of pensions, assets and liabilities

The Chairman noted the VFM significant risks which had been identified as Financial Resilience and the Better Care Fund. He was pleased to note that the external audit fee had reduced by 25%.

The Committee were impressed with the information contained in the KPMG Local Government Budget Survey Document. The Chairman referred the Committee to section 7 of the document relating to savings measures that local authorities relying on for 2015-16 and beyond. The most popular measures were:

·  Reducing Back Office spend

·  Rationalising property and assets

·  Working in collaboration with other bodies

·  Purchasing Investment properties to generate income

Mr Johnstone commented that Councils were facing financial challenges, and that in many cases, instead of just looking at budget cuts, they were looking at ways to better use existing resources. A Member expressed the view that the KPMG Local Government Budget Survey be brought to the attention of the Executive and Resources PDS Committee. 

A Member queried if academisation was on the radar for external audit, and the answer to this was no, there was a greater risk in the areas of health and social care. Concerning the BCF fund, Mr Johnstone expressed the view that developments in this area would be interesting, and that the proper utilisation of BCF funding was made easier when synergies existed between the local authority and the local CCG. He felt that any risks were greater at CCG level. 

A discussion took place about reserves, including the General Fund and Ear Marked Reserves, in addition to usable and unusable reserves. It was noted that unusable reserves could only be accessed by authorisation from the Secretary of State.

A Member queried the level of risk attached to the use of an Investment Special Purpose Vehicle (SPV). The KPMG report had noted that there were risks attached around the accounting treatment of the SPV, and the associated “gifting” to the pension fund. Mr Johnstone expressed the view that he did not anticipate that the SPV would impact adversely on the accounts. The Committee agreed that going forward, the mechanism for auditing SPV’s should be clarified, along with who would be doing it.

A Member referred back to the Local Government Survey document and asked if KPMG would be able to feed back to LBB with any useful or relevant experiences from other local authorities. Mr Johnstone responded that KPMG would be in regular dialogue with the Chief Executive and the Director of Finance.

RESOLVED:

(1) that the KPMG Local Government Budget Survey document be brought to the attention of the E&R PDS Committee

(2) that the mechanism for auditing SPV’s should be clarified, along with who would be doing it.

(3) that the External Auditor’s arrangements for the 2015-2016 Audit Plan be noted

(4) that the materiality limits set out in the plan be noted

(5) that the reduction in the audit fee by 25% be noted

(6) that the VFM arrangements set out in the plan be noted 

(7) that the KPMG Local Government Budget Survey document be noted, along with the comments made by the Committee with reference to the document