Agenda item

The Committee is asked to review and note the audit result reports from EY for West Sussex County Council and the West Sussex Pension Fund.

4.1     The Committee considered the Audit Result Reports by the External Auditor EY (copies appended to the signed minutes).

4.2     Mrs Thompson (EY) began by thanking officers for their prompt work during the accounts audit.  The audit had been smooth as a result of this and the accounts were in a good place.

4.3     The Committee agreed to focus on the West Sussex County Council Statement audit first.

4.3     Mrs Thompson outlined the key work that had taken place including the work required to reflect the change in portfolios which had led to a change in audit scope and so an additional fee had been included.  There had also been a change in materiality levels which had led to an updated threshold for reporting misstatements of £1.3m.

4.4     It was explained that there was outstanding work related to the Whole of Government Accounts submission.  The deadline for this was the end of August, but it was confirmed that this did not affect the audit.

4.5     There were no adjusted misstatements to highlight and it was proposed that an unqualified opinion would be given on the accounts.

4.6     Mr Mathers (EY) reported that a risk had been identified for management override.  This had been investigated and no evidence of management override was found.  A main focus of the audit had been on land and building valuation which had found a potentially material difference.  Additional work was undertaken to investigate.  This work showed that no changes were ultimately required.

4.7     Mr Mathers reported that all recommended adjustments arising from the audit had been made or, in the case of the PFI recommendations that had been reported later, would be made in the 2018/19 accounts.

4.8  Mr Mathers reported on value for money (VFM)  risks and the two areas that had been identified; weakness in procurement and contract management, and financial resilience.  Improved commissioning activity had been seen for Adult services, but there is still work to do.  Childrens’ Services represented a high cost pressure and work is still required.  A holistic approach had been recommended to ensure good working with other parties.  In terms of financial resilience, slippage within the capital programme had been identified which officers were addressing.  There was appropriate monitoring of the Medium Term Financial Strategy.  Overall EY were satisfied with arrangements and an unqualified VFM conclusion was proposed.

4.9     The Chairman thanked EY and officers for their hard work in preparing the accounts in time for the new deadline.

4.10   The Committee made comments including those that follow.

• Sought clarity on the difference in materiality on the Property, Plant and Equipment (PPE) revaluation issue.  – Mr Mathers explained that the £44m related to EY’s estimate of the difference between the carrying value and the current value of PPE assets that are not subject to revaluation, which if the council had adopted to index the assets which had not been valued in the year, would have resulted in an increase of the carrying value of PPE.  The internal valuation specialist within EY reported that the County Council’s approach was reasonable.

• Asked if the Committee could request that items were revalued outside of the five year cycle.  – Mr Mathers reported that it was the County Council’s judgement over what was included in the valuation.  It was thought that the County Council’s approach was sensible as it covered a good sample and allowed for further investigation if required.
• Questioned if certain asset types could be revalued at different times, and if the valuation included unrealised assets such as infrastructure.  – Mr Mathers explained that CIPFA stated what assets should be valued over a 5 year cycle with sufficient work performed to ensure no material misstatement in any one year.  The County Council undertook an annual impairment review to look at specific assets.  All PPE had been included.  Short life assets such as vehicles were not included.
• Queried why the Schools PFI had looked back to 2009/10.  – Mr Mathers explained that this was due to a review of the accounting changes which came in in 2009/10.  Some residual differences had been identified in the 2016/17 audit but had not been amended as they were not material.  These differences were highlighted this year by the EY specialist at a very late stage of the audit. 
• Requested an explanation on the difference in the capital budget from the outturn.  – Ms Eberhart explained that the difference was linked to a refresh of the capital programme and the identification of underspends and delays to projects.  The Performance and Finance Select Committee (PFSC) had looked into this and were satisfied with the explanation.  Mr Hunt clarified that the issues were linked to factors outside of the County Council’s control.  A good team were in place to work on this with assistance from a multi-disciplinary partner.
• Queried if the process for commissioning was too complex and sought guidance on best practice.  – Mrs Thompson explained that commissioning was a key action, and a challenge for all councils to comply with best practice.  A review had been undertaken to give assurance on the Council’s arrangements.  More work was required and recognised by the County Council within the Annual Governance Statement.
• Sought clarity on the process for the Target Operating Model (TOM).  – Ms Eberhart explained that PFSC had set up the Contracts Task and Finish Group which had looked into the TOM.  The PFSC report outlined the details of the procurement cycle, and the new organisational structure was out for consultation.  Ms Eberhart agreed to circulate slides on this.

4.11   The Committee then considered the West Sussex Pension Fund statement.

4.12   Mrs Thompson introduced the report and explained that there were no areas of outstanding work.  Mr Mathers reported that there were significant risks of management override that EY would seek assurance that the grounds for this were appropriately managed.  There were no specific areas that required bringing to the Committee’s attention.

4.13   The Committee made comments including those that follow.

• Queried the project to reduce the differences in membership numbers.  – Mr Hunt explained that the pension administration transfer was in train and would address this.  Mrs Davies (Finance Manager – Pension Fund (Accounting & Reporting)) explained that officers were working with Capita and employers to resolve differences in active membership.  An incorrect report had been received from Capita- HRMI and so the Pension Fund had to produce the correct report.  Mr Mathers explained that this had been a new process to reconcile pensions paid at a member level.
• Concerns were raised on the transfer of erroneous data and reassurance was sought that this would be corrected.  – Ms Eberhart stressed the importance of the transfer project and gave reassurance that officers were working with Capita and Hampshire County Council to ensure clean, reconciled data is uploaded onto the Hampshire County Council system.  Work on the reconciliation would be completed and correct for the triennial valuation.  The Committee agreed to write to the Pensions Panel Chairman to request reassurance on this process.  Mrs Thompson confirmed that this was a focus for EY.  Mr O’Brennan (Principal Pensions Accountant) explained that officers completed an annual reconciliation of the data to highlight and correct errors.

4.13   Resolved – That the Committee notes the audit result reports from EY for West Sussex County Council and the West Sussex Pension Fund.