Agenda item

FSD22054

The External Audit and Financial reporting update was presented to the Committee by the Head of Corporate Finance and Accounting. The Chairman explained that when the Audit Sub-Committee was still a sub-committee of the GP&L Committee, then decisions with respect to external audit were referred to the General Purposes and Licencing Committee. Now that the Audit and Risk Management Committee was a full committee in its own right, this was no longer the case.

The Head of Corporate Finance and Accounting explained that after the Audit Commission was de-commissioned, its work was taken over by four main bodies:

1)  PSAA (Public Sector Audit Appointments)

2)  Institute of Chartered Accountants

3)  Financial Reporting Council

4)  The National Audit Office

It was now the responsibility of the PSAA to appoint the external auditors for local authorities and to set the fees. Shortly, LBB would be notified of which organisation would be appointed as its next external auditor to replace Ernst and Young. It was noted that as a result of notable audit failures (for example Carillion), the Financial Reporting Council had now instructed external auditors that their audit work should be more rigorous, so the work of external audit was now a more extensive exercise than was the case in the past.

Reference was made to the Government review of external audit, which was the Redmond Review. One of the recommendations of the review which would directly affect the Council was that there would now be a requirement to appoint at least one, if not two independent members to the Audit and Risk Management Committee. The Council would be responsible for the recruitment of independent members. An explanation was provided regarding how the fees of external auditors was calculated.

A Member noted that the last set of accounts that was fully signed off was for 2018/19. She commented that this seemed to be rather an old set of accounts and wondered if this was a Bromley problem, or if it was a problem across the sector. The Head of Corporate Finance and Accounting answered and said that it was a sector problem. The next set of accounts to be signed off would be 2019-2020, they were nearly ready to be signed off and it was anticipated that they would be signed off by the end of September 2022.

Members were briefed concerning the valuation of property assets which was undertaken by professional valuers and this was something that would be scrutinised in depth by external auditors. It was noted that no penalty existed if the publication of accounts was delayed, although it could result in reputational damage to the Council. 

A discussion took place regarding objections to the accounts. These had been received from the same individual over a period of three years; 2016/2017; 2017/2018 and 2018/2019. For the period from 2016 to 2018, the objections had been dealt with and no wrong doing was found on behalf of the Council. The audit of the accounts for 2018/2019 had been completed, but a final resolution in terms of the objections for that year was still required. 

The audit of the accounts for 2019/2020 was almost finalised. However there was one problem (which was a national one) in that there was a debate ongoing as to how councils should value infrastructure assets like roads. This was being looked into urgently by CIPFA.

A Member expressed concern over the variation in the valuation of car parks. He pointed out that E&Y had decreased the valuation of a car park by £10m and that this was a significant margin. He also pointed out that LBB had been unable to properly account for furniture and fittings to the value of £8.7m due to a lack of evidence and also expressed concern that the Finance Team needed more resources.

The Head of Corporate Finance and Accounting responded and said that the mistake in the valuation of the car park was not made by the Council but by the Valuer. It was now the case that valuation for these types of assets would also be looked at by the Property and Finance departments in the Council. Previously, the Council had needed to account individually for every desk, table and chair. There had been a system in place to estimate this value which had previously been acceptable. With the increased rigour that was now required from external auditors, this process was now no longer acceptable. The solution  that was proposed going forward was that desks, tables and chairs would no longer be capitalised. The Head of Corporate Finance and Accounting stated new posts had been created and so the matter of staffing resources was being addressed. At the moment, the Finance Team was recruiting for a new specialised post and there was also a case of a person on long term sick leave. 

A discussion took place regarding the timescale for the appointment of the independent member. There was no specific timescale that had been provided at the time of writing. What the definition of ‘independent’ would mean in this context would be codified by CIPFA. The Head of Audit and Assurance stated that LBB could appoint an independent member ahead of time if it wished to.

It was noted that a report concerning the appointment of independent members to the Audit and Risk Management Committee would be presented to the next meeting of the Committee. 

RESOLVED that the External Audit and Financial Reporting Update be noted.