Agenda item

The Committee is asked to consider the 2020/21 Audit Results Reports for the West Sussex Pension Fund and the West Sussex County Council from the External Auditor Ernst & Young (EY).

20.1     The Committee considered the Audit Results Reports for the West Sussex Pension Fund and the West Sussex County Council; and updated draft management representation letters (copies appended to the signed minutes).

20.2     Mrs Thompson, EY, began by introducing the West Sussex Pension Fund report and reporting that the audit work was substantially complete and that County Council delays would delay the Pension Fund work as the audits would be signed off together.

20.3     Mrs Thompson highlighted that there had been a change in materiality and also that there had been a change in the International Standards of Auditing on 5 40 concerning auditing estimates.  This change had impacted EY’s audit work.

20.4     Mr Mathers, EY, spoke on the risks that had been considered as part of the pension fund audit.  The first risk was on the manipulation of investment income and valuation and concerned management override risks.  It was highlighted that this was difficult to do for pension funds as the information used for the accounts came from third parties, such as fund managers.  The investigation on this area resulted in no issues being reported from the audit.

20.5     Mr Mathers reported on the next considered risk which concerned the valuation of property investments.  The risks on this area focussed on the estimate of property values and ensuring that the appointed valuer’s work is reliable.  The investigation on this area resulted in no issues being reported from the audit.

20.6     Mr Mathers reported on the next considered risk which concerned the valuation of level three investments which was a material area of the fund.  There was no observable market data for this and so the investments were difficult to value.  Another difficulty was that the investments were not underpinned by the end of year statements and so additional work was required to gain assurance.  The investigation on this area resulted in no issues being reported from the audit.

20.7     Mr Mathers reported on the final area of audit focus which was on going concern which had been impacted by the Covid-19 pandemic.  The pension fund was performing strongly and had significant liquid investments available if required.  Consideration of liquidity estimates and how they had been reported had been looked into and EY were satisfied that work in this area was reasonable.  EY had made some changes to the disclosure for going concern in the management assessment in the financial statements.

20.8     The Committee made comments including those that follow.

•    Sought clarity on the lower value misstatement that had been identified.  – Mr Mathers confirmed that the value concerned private equity valuations.

•    Queried the draft management representation letters and that the role of the Committee in the process should be clarified.  – Mrs Thompson proposed that wording could be added to the letters to confirm that the Committee had considered and reviewed the reports at a meeting as part of their terms of reference responsibilities.

20.9     Mrs Thompson introduced the West Sussex County Council report and began by thanking both County Council and Pension officers for their help with the audits.  The year had been challenging for the audit and the work had been significantly helped by the support that had been received.

20.10  Mrs Thompson reported that the straightforward areas of the audit were complete, but there were three areas that were still outstanding which could impact the completion deadline of 30 September.  The first area concerned an objection that had been received from a member of the public.  EY were working to consider if the objection would impact their audit opinion concerning value for money.  An internal consultation was taking place to consider EY’s judgement on the objection.  The second area concerned valuation of property, plant and equipment.  The third area concerned IAS19 pension liabilities which was a national issue for financial statements.  With regard to value for money consideration, apart from the objection consideration, there were no matters to report by exception.  The Auditor’s Annual Report would include summaries on the three matters outlined.

20.11  Mrs Thompson explained that EY would not be able to issue the audit certificate which formally closes the audit due to the outstanding work as mentioned.  The delay of issuing the audit certificate was also linked to a delay in HM Treasury releasing the tool used for submitting the  Whole of Government Accounts.  The Audit Result Reports would be reissued to the Committee when they were finalised.

20.12  Mr Mathers reiterated Mrs Thompsons comments on the hard work undertaken by County Council officers to assist with EY’s audit.  Mr Mathers spoke through the risks that had been considered as part of the County Council audit.  The first risk was on the management override controls and how they could be misused.  The audit work on this area was complete and there were no issues to raise to the committee.

20.13   Mr Mathers reported on the next significant risk which concerned inappropriate capitalisation of revenue expenditure.  EY had tested this area and were satisfied that there were no areas of concern to raise with the Committee.

20.14  Mr Mathers reported on the next significant  risk which concerned the valuation of land and buildings.  Significant work had been done in this area following the County Council’s change in their appointed valuer, and how the different approach taken by the valuer had been reported.  EY had added disclosures on this to explain the County Council’s judgements, and work to test this area was still being undertaken by EY’s valuer.

20.15  Mr Mathers reported on the next area of audit focus which concerned the County Council’s Private Finance Initiatives and the models that were in operation for them.  There had been no changes to models used, and EY had no issues to report on this area.

20.16  Mr Mathers reported on the next area of audit focus which concerned pension liability valuations.  For this area the County Council was reliant on the work of the actuary, and so EY tested the information submitted to the actuary and the output from the actuary.  As the final audited value of Pension Fund assets was available, the Council made an adjustment to update the estimated value used in the draft statements.

20.17  Mr Mathers reported on going concern and that this was a strong area for the County Council with regard to cashflow and treasury management.

20.18  Mr Mathers reported on the final area of focus which concerned the accuracy and appropriateness of Covid-19 grant reporting.  The accounting treatment applied for an Adult Social Care grant had been considered and accepted as reasonable, but the County Council had been asked to include more disclosure details in the statements.

20.19  The Committee made comments including those that follow.

•    Queried the introductory letter in the report and the quality of evidence required to perform a satisfactory audit, and if this gave more assurance than previous years.  – Mrs Thompson confirmed that audit was generally under a high level of increasing scrutiny and gave reassurance that EY would only give an opinion and sign off an audit when they were completely satisfied.

•    Questioned why EY has not be able to access actuary models as part of the audit.  – Mrs Thompson explained that all actuaries had different models which were their own intellectual property.  The model mechanics were not considered, but EY would be able to identify if there were issues with the model that impacted materiality.  Mr Mathers added that the work on modelling would complete soon, and EY felt it was likely to run positively based on the work done on other audits.

•    Sought clarity over the Adult Social Care grant and how intelligence from other audits had been considered.  – Mr Mathers explained that there were split opinions across authorities on how the grant should be reported.  Additional disclosures had been added to the statements to explain the West Sussex County Council approach.

20.20  Resolved – That the Committee notes the 2020/21 Audit Results Reports for the West Sussex Pension Fund and the West Sussex County Council and requests that details be added to the management representation letters to cover the role of the Committee.