Agenda item

To receive an Accounts and Audit update.

Lizzie Watkin, Director of Finance and Deputy Section 151 Officer, presented the Accounts and Audit update.

 

The update was being provided following the briefing note sent to Members after the July meeting of the Committee. As Members were aware there had been delays to the audit process and in getting the Statements of Accounts (SoA) 2019/20 signed off. There were national issues regarding the completion of accounts which had been discussed at length at previous meetings of the Committee.

 

The backstop date to sign off the SoA 2019/20 was 31 December 2023. The focus remained on getting those accounts through the process and there would need to be a push to draw those to a close. A more in-depth report would come to the November meeting of the Committee, and it was hoped that at that meeting the Committee could accept the audit opinion, otherwise a delegation may be required.

 

The backstop dates for the other outstanding accounts were as follows:

·       Statement of Accounts 2020/21 and 2021/22 – 31 March 2024

·       Statement of Accounts 2022/23 – 30 August 2024

 

For the SoA 2023/24 the council would have new auditors (Grant Thornton) and the finance team were already planning with them how the process for those would work. The backstop date for the SoA 2023/24 was 31 March 2025.

 

At present it was not entirely clear how the whole process regarding backstop dates and future accounts would work, so the Committee would be kept updated.

 

Ian Howse, Deloitte, agreed with the officer and hoped to complete the audit for the 2019/20 accounts by the backstop date of 31 December 2023. The backstop dates were a practical expediency to the situation that Wiltshire Council, and many other local authorities found themselves in. What would be as important would be what happened to prevent the backlog occurring again. Mr Howse was very encouraged by the work of the National Audit Office (NAO) who were revising the code of practise. However, he felt that the Chartered Institute of Public Finance and Accountancy (CIPFA) codes should also be reviewed. Whilst encouraged by the backstop positions, it was stated that it would likely lead to a disclaimer opinion for SoA 2019/20. The aim for both Deloitte and Wiltshire Council was to avoid the backstop dates. However, there was a lot of work for both the auditors and the finance team to get all the audits completed by 30 August 2024.

 

In response to a question regarding whether there were sufficient human resources to meet the backstop dates, for both the auditors and the council, the officer explained that the council had additional resources in place to deliver all the sets of accounts by the end of August 2024. However, in the officer’s opinion it may not be possible to achieve as robust a set of accounts as one would wish, due to the timescales involved. There were concerns regarding completing the 2020/21 and 2021/2022 accounts by 31 March 2024, as it would be hard to ensure they were up to standard and robust. Officers would consider what it would mean for future sets of accounts if those accounts were not as robust as one would like. Mr Howse stated that Deloitte had the resources to deal with as much of the backlog as they could, he felt that completing the 2022/23 audit would be more challenging.

 

Members queried the risks involved and highlighted the recent news regarding Birmingham City Council issuing a section 114 notice.

 

Mr Howse stated that many councils would likely not meet the backstop dates. There were few companies that undertook local authority audits, and one supplier had approximately 100 councils in a similar situation to Wiltshire Council. However, it was rare for this to happen. His understanding was that if an audit was not complete by the time of a backstop date, then auditors would report everything they knew at that time. They could highlight any issues, detail unfinished work and would try to give as much assurance as possible. Mr Howse further explained that at no stage in the 2019/20 audit had Deloitte raised issues with Wiltshire Council’s general fund provision. It was however the auditors work in Birmingham that highlighted the issues and led to the section 114. In terms of risk, there was some risk in not having audited financial statements as auditors did not look at the revenue outturn report, which was what councils relied on for budget setting. There was also some political risk. Otherwise, essentially, the accounts were just a bit late.

 

Andy Brown, Corporate Director Resources & Deputy Chief Executive (S 151 Officer), stated that Wiltshire Council was not in the same bracket as Birmingham City Council. It was explained that our accounts were compiled at the end of the financial year and estimates made in terms of any provisions that may be required to deal with issues, for example equal pay claims. These would then be tested by the external auditors. The officer felt that our provisions were accurate. Not having a signed off set of accounts did cause some unease as there was no external clarification that these provisions have been tested. However, the issues the council were dealing with in the 2019/20 accounts related to non-cash assets, and it was the cash reserves that mattered in terms of the council continuing to be able to deliver services. The Committee had discussed on many occasions the previous misstatements and errors that required correction. There was a slight disagreement with the auditors in terms of financial stability through the value for money judgement. However, fundamentally, given the length of time if the council was unsustainable that would have come up by now and the council has a balanced three year budget.

 

The officer further explained that there could be something left field or unknown which came up due to the council not having signed off accounts, but the accounts sign off in itself was no guarantee due to the sample, risk nature approach. However, Birmingham City Council would have been aware of the issues they were facing at the time of closing their accounts (in respect of their equal pay claims), but had not put or estimated provisions to deal with them appropriately. The officer was hopeful that the NAO was progressing the situation and drawing a line under it.

 

Members sought further clarification on what the backstop dates actually meant and whether the new regulatory framework would take account of the asset valuation issues that had caused many of the problems.

 

Mr Howse explained that at the backstop date, if the audit was incomplete, then you would draw a line under it and reach a conclusion. This would likely lead to a more verbose audit opinion than usual as the auditors would try to give as much assurance as possible. What still needed to be worked through was what that would then mean for the next set of accounts. If the previous set of accounts were unfinished or there was a disclaimer opinion, then how would one know that the opening balances on the next set of accounts were sound.

 

In relation to the new regulatory framework Mr Howse stated that he hoped that it would tackle asset valuations. An awful lot of time had been spent on the asset valuations, which were of little value to a member of the public. The NAO would tell auditors what to do, but this could mean that they were not complaint with International Financial Reporting Standards (IFRS), which was what they aimed for.

 

Lizzie Watkin stated that conversations so far had been focused on audit regulations. She had not been party to any conversations regarding financial reporting or accounting regulations. The officer felt that technical accounting regulations for local authorities should be changed. The council would push for change in terms of the reporting requirements for local authorities.  

 

Members highlighted that there were 24 local authorities on the brink of issuing section 114 notices and that Wiltshire Council was not one of them. Members felt that there was nothing sinister in the failing to sign off the accounts and the likelihood of something unknown lurking in the unsigned off accounts was low. Many people were concerned about these matters instead of focusing on the council’s available funds to provide services and deal with issues. Members were concerned that their colleagues who were not part of the Audit and Governance Committee were not aware of these matters and that a briefing note for them would be helpful.

 

Members queried the scale of the longer term change required and what the implications on staff, resources and costs would be.

 

Mr Howse stated that widespread change was required. There was a significant shortage of audit partners who could undertake local authority accounts. More trainers for auditors were required, or accreditation needed to be made easier to achieve. There was a requirement to review the code and to work through the CIPFA codes. Another issue was financial reporting for councils as the regulators kept raising the bar which had a knock-on impact on terms of cost.

 

Andy Brown explained that from Wiltshire Council’s perspective we were already over and above in terms of staffing to get all the accounts to a point where we could get an audit opinion. There was a balancing act in terms of the resources allocated as that came with additional costs. The Director of Finance was managing an overspend related to this. However, the council was committed to additional resources as described. The local government finance sector needed to undertake work on resources, training and succession planning. The council was part of Public Sector Audit Appointments (PSAA) who set audit fees. The council were currently in talks with Deloitte regarding additional fee costs. The council still needed to ensure that they had the right skills and capabilities to close the accounts and they had struggled with this in the past and may well do so again.

 

Members expressed a degree of concern that part of the issues faced by Birmingham City Council were caused by them changing to new Enterprise Resource Planning (ERP) software, Oracle, which Wiltshire Council were in the process of doing.

 

Members highlighted again that colleagues and residents needed to understand the situation regarding the accounts. In particular that there was nothing catastrophic or criminal in this. It was a common situation being faced by many local authorities and was related to obscure technical accounting regulations.  The Chairman agreed that a briefing note was a very good idea and asked officers if they could provide one.

 

Andy Brown stated that officers would be happy to provide a briefing or briefing note. He explained that the accounts issues had been reported to the Audit and Governance Committee as it was their responsibility. However, due to the national issues and in particular the recent section 114 notice issued by Birmingham City Council a wider Member briefing would be helpful. It was also important to keep the public informed, which Members could help with once briefed. It was stressed that there was nothing in the accounts that raised concerns regarding the sustainability of the council, which had in fact improved since 2019/20.

 

In relation to Oracle, Birmingham City Council had an original budget of £20 million, and had faced many issues which cost £100 million to correct. At Wiltshire Council the Evolve Scrutiny Task Group had been involved throughout the whole process. The plan was to go live with Oracle in November 2023 and for payroll in April 2024. Wiltshire Council had learned from mistakes made at other councils. There were controls in place, assessments would be made, and they would not go live unless everything was ready.

 

At the Chairman’s discretion, Cllr Matthew Dean (Westbury West Division) spoke as a guest. He raised many concerns in relation to the situation.  This included disappointment that all Members had not been briefed in relation to the accounts. He had voted on financial matters at Full Council without ever having been aware of the situation. He felt that something this serious should have been reported by the Section 151 Officer, the Monitoring Officer, or Cabinet Members at Full Council. He would also have expected the external auditors, especially if they were in dispute with officers, to have drawn this to the attention of Full Council. He felt that even if there were good reasons for the delays this should have been reported. 

 

Cllr Dean detailed the issues which had affected Birmingham City Council and raised concerns that we could face some of the same issues, such as equal pay claims and changing the ERP to Oracle. He was worried that the accounts may not be signed off by backstop dates and what impact this would have of the Council’s ability to borrow. He felt there should be a political debate with senior management to assess the staffing situation. In his opinion he felt that we should front load resources to clear the backlog, despite the increased costs this would incur.

 

Furthermore, Cllr Dean raised concerns about transparency, and felt there was a lack of interest and willingness to share the details further than the Audit and Governance Committee. He felt it was incorrect that Members would find out about the situation by reading about it in the press.

 

Cllr Dean stated that he was concerned that we were changing auditors and that this added another level of complexity. He also queried the relationship between financial officers and the current auditors.

 

The Chairman explained that the Audit and Governance was handling these issues in the first instance as it was their responsibility. However, he did agree that a briefing for all Members was a good idea, as discussed earlier. He stated that he had also been unaware of the situation prior to joining the Committee. The Chairman highlighted that the press had picked up on the situation from the minutes of the last meeting. However, they would work to address the issue going forward.

 

Andy Brown explained that this Committee was charged with governance and signing off the accounts. The Committee were aware of all the details and the national issue with local authority audits and accounts. Discussions regarding this had been taking place at Audit and Governance since he joined the council in 2020 and all agendas and minutes were in the public domain. It was highlighted that the appointment of auditors was outside our control. The council were part of the PSAA who appointed auditors. The decision to be part of the PSAA had been made by Full Council in February 2022. He agreed that conversations should be had regarding any big issues. The problems faced at present were technical accounting issues.

 

Perry Holmes, Director Legal and Governance and Monitoring Officer thanked Cllr Dean for his comments and felt it was unfortunate that Cllr Dean had been unaware. He stated that it was a matter for all councillors on how they informed themselves on the activity of the council. The officer explained that there had been many hours of discussion at Audit and Governance regarding the technical accounting issues which were a national problem. He had raised the issue within the Annual Governance Statement which had been to the July meeting of the Committee so felt that the council had been transparent. The officer stated that he had never worked at a council that was as transparent as Wiltshire Council and the recent Corporate Peer Challenge had found there to be high levels of transparency and strong levels of governance.

 

Mr Howse felt that it was good that councillors who were not part of the Committee could attend and raise questions. He explained that Deloitte could report to Full Council if they needed to. However, at the Audit and Governance Committee, Deloitte had reported extensively over a number of years on the situation. Members had asked appropriate questions regarding the external audit reports. Had the Committee not listened, he would have reported to Full Council. He understood Cllr Dean’s frustration and felt that it was disappointing that not all Members were aware.

 

Cllr Dean highlighted that so much information was imparted to councillors, and there were so many agendas and minutes, he felt it was impossible to keep abreast of it all. Particularly as many Members also worked full time. He therefore thought that this should have been brought to Members attention and requested that in future the Monitoring Officer, S151 Officer and finance team let him, and all councillors know when there was an issue of this nature. Cllr Dean highlighted government regulations which put requirements on him as an elected Member. Cllr Dean also expressed disappointment that the Cabinet Member for Finance was not in attendance. Cllr Dean queried asset transfers to Town and Parish Councils whether there would be liabilities to those organisations in relation to assets.

 

The Chairman explained that the Cabinet Member for Finance had been due to attend but had tendered apologies due to a medical emergency. The Chairman stated that Cllr Dean’s points about important issues being raised with all Members would be taken on board.

 

Some Members stated that they were fairly certain that the situation had been mentioned at Full Council.

 

Andy Brown stated that Town and Parish Councils were responsible for any liabilities regarding their assets.

 

The Chairman proposed the recommendation within the report to note the update and added an additional proposal that officers should produce an appropriate briefing on the current issues for Members. This was seconded by Cllr Gavin Grant. It was,

 

Resolved:

 

·       To note the update on the Accounts and Audit backstop dates for the outstanding accounts.

 

·       To ask officers to produce an appropriate briefing on the current issues for members.

 

NB: An administrative note has been prepared and appended to these minutes, which provides for ease of reference details of meetings at which the accounts and audit situation has been discussed.