Agenda item

The Committee is asked to consider the Audit Update report from the External Auditor Ernst & Young (EY).

41.1     The Committee considered the report from the External Auditor Ernst & Young (EY) (copy appended to the signed minutes).

41.2     Mr Lazarus introduced the report and explained that there had been no additional guidance alongside the ministerial statement for audit resets.  It was confirmed that work had continued where possible (for West Sussex this included the County Council’s Value for Money opinion and the Pension Fund financial statements) and would continue up to the proposed September backstop date in those areas.  The audit sector was experiencing pressure to keep audits on track with the reset aimed at getting back on a steady footing and this has been interpreted differently by the audit firms.

41.3     The Committee made comments including those that follow.

•      Sought clarity on what the disclaimer would mean for West Sussex.  – Mr Lazarus recognised that it was an unfortunate position for West Sussex given the Council’s good previous track record of external financial reporting and reported that some audit providers may have different mandate profiles for audit completion.  It was confirmed that West Sussex was in a good position and lobbying was taking place to see if the disclaimer wording could be reflective of the West Sussex position.  It was hoped that the public statement on the disclaimer would report that the fact the opinion on the 2022/23 accounts could not be given was not the fault of West Sussex and related solely to the establishment of a backstop date and the related need to reset local authority audit.

•      Queried if the opinion would recognise the work that had been audited.  – Mr Lazarus confirmed that the value for money work, pension fund statements and work on other audit responsibilities would be reflected.  However it would be noted that the opinion on the financial statements would be disclaimed.

•      Questioned how assurance would be restored where there were audit gaps.  – Mr Lazarus explained that assurance would be built back up over the following years.  West Sussex was in a good position and so the rebuild would be smaller than other local authorities.  EY had no specific concerns on the areas that had not been audited.  EY were lobbying to see if it was possible to add a distinction in the disclaimers to differentiate between ‘good’ and ‘bad’ local authority positions.

•      Sought clarity on the decision on which organisation’s audits would continue.  – Mr Lazarus explained that the Government had specified which audits should continue. The Department for Levelling Up, Housing & Communities (DLUHC) and the Financial Reporting Council (FRC) consultation was also clear that audit providers should have regard to the potential detrimental impact on delivery of audits in other parts of the public sector, for example the National Health Service (NHS) and Central Government, in considering plans for open local government audits.  EY also delivers NHS and Central Government audits, so this was a relevant consideration.

•      Queried if there were any financial impacts on the pension fund if the audit was not fully completed.  – Mr Mathers (EY) confirmed that EY would be able to give a clean opinion on the pension fund, but explained that the audit report could not be separated from the county council statements, so issue of the Pension Fund opinion was dependant on issue of the County Council disclaimer.  The audit results report could also be used to clarify the position of the disclaimer i.e. that it was solely attributable to the backstop date and reset process.  Mrs Eves confirmed that there would be no risk on our ability to externally borrow and the context of the disclaimer would just need to be demonstrated.

•      Asked if the approach going forwards would be possible within EY resources.  – Mr Lazarus confirmed that EY had seen a 15% increase in workforce and that internal analytical planning was taking place across EY’s whole portfolio.  It was felt that the staff uplift would allow EY to get back on track, noting that audit backlogs are pervasive across all providers.  Mr Mathers also reported that EY had deliberately bid for a lower work volume in the new 2023/24 Public Sector Audit Appointments Limited framework contract for local government audits, which would help.  It was also highlighted that there was still a role for CIPFA to assist in streamlining the accounts.

•      Queried what were the areas of concern during the rebuild processes for West Sussex.  – Mr Lazarus said this would depend on legislation and guidance.  The Committee proposed it may be useful to check contract documents where they referred to audited accounts.

•      Asked if the risk register should reflect the concerns during the rebuild period.  – Mr Lazarus explained that risk consideration should be focussed on how to gain assurances on non-audited areas.

•      Queried if it was possible to see details of the three year rebuild plan.  – Mr Lazarus confirmed that the outcome of consultations which were still awaited would inevitably dictate this, but proposed that the plan would be available in the autumn.  EY’s approach was to focus resources on current financial reporting (i.e. 2023/24) to better allow for timely reporting and the ‘rebuild’ to happen as quickly as possible.

•      Sought clarity on the impact of each year’s audit status.  – Mr Lazarus confirmed that the disclaimer was for 2022/23 and that it would be a priority to ensure 2023/24 audit was achieved on time.  Mr Mathers confirmed that the 2023/24 audit would be impacted by the 2022/23 disclaimer, but the impact would reduce in future years as the rebuild process continued.

•      Queried if DLUHC were comfortable with EY’s approach to the reset.  – Mr Lazarus reported that there was no formal approval on the approach taken, but there had been an acknowledgement of the work undertaken, the transparent approach with all parties, and the difficult landscape for the sector.

41.4     The Committee noted the update and proposed that training on the changes coming out of Public Sector Audit Appointment (PSAA)/DLUHC and CIPFA would be beneficial to the Committee.

41.5     Resolved – That the report be noted.