Agenda item

The members of the Regulation, Audit and Accounts Committee are asked to consider the External Audit Plans for West Sussex County Council 2019/20 and the West Sussex Pension Fund 2019/20.

Following the cancellation of the Regulation, Audit and Accounts Committee on 23 March 2020 due to the current public health emergency, the Chairman agreed to hold an informal, virtual meeting of members of the committee on 3 April 2020. The meeting was held in order to discuss the External Audit Plans with the External Auditors, EY, so they could continue their work.

These notes record the discussion of the members present.

Appended to the minutes are questions from the members, with officer responses, on other agenda items that were planned for review at the 23 March meeting.  These were submitted subsequently as written questions and were not discussed during the virtual meeting.

1.1     The Chairman welcomed Members, Officer and attendees from EY to the virtual meeting.

1.2     The Chairman had asked members to submit their questions in advance of the virtual meeting in order to better facilitate the running of the meeting.

1.3     The questions were grouped together by topic and presented to EY to answer during the meeting.

1.4     The first questions related to the change in materiality level and sought clarification on the reasoning and benefits behind this change.  Members queried what EY hoped to learn from this change and if this was considered more important than governance concerns.  Members also queried what the impact would have been to last year’s audit if the materiality level had been reduced.

1.5     Mr Mathers (EY) explained that EY had a professional responsibility to set materiality at an appropriate level which was important to do from their independent position.  EY felt that changing the level of materiality from 1.8% to 1% was the appropriate level.  The reasons behind the change included the fallout from the Children’s Services inspection which had highlighted volatility in spend and pressures on the revenue budget and due to more stakeholder interest in the council.  The risks involved with potential management override were also a factor.  Headline materiality was a consideration in that higher interest from stakeholders on the level of errors would be anticipated.  It was also confirmed that 1% was the industry standard.  Mr Mathers confirmed that no change was recommended for performance materiality as the County Council had a good track record for financial statement accuracy.

1.6     Mrs Thompson (EY) explained that the change in materiality level would increase the sample size of the audit work in that there would be greater coverage and more testing which would lead to an overall increase in assurance.

1.7     Members had submitted questions querying the impact COVID-19 on areas such as the External Audit Plans; the practicalities of the audit; the County Council’s ability to function as a Going Concern; Value for Money risks for the County Council’s operations and projects; fees; and the impact on 2020-21 revenue.

1.8     Mrs Thompson responded stating that operational and delivery risks were being considered.  EY’s general working approach was geared up for remote working and so the impact of isolation had been absorbed well.  The interim audit work had showed that the County Council was also geared up for remote working.  Secure transfer systems had been utilised to share key documents and query logs had been set up with officers to assist with the work.  EY were maintaining contact with officers and increasing the frequency of conference calls.  The initial slowdown caused by COVID-19 seemed to have stabilised.

1.9     Mrs Thompson explained that the deadline for financial statement submission had moved from May to June; and the audit opinion deadline had moved from July to September as a result of COVID-19.  EY were aiming to keep to the original deadlines where possible.  There would ultimately be a delay when it came to the consideration of hard copy data and so the later deadline could be used to enable site hard copy checks.  POST MEETING CLARIFICATION – the financial statement submission has now been confirmed as August with the audit opinion now November.

1.10   Mr Mathers discussed the risks associated with COVID-19 and the need for EY to establish that the County Council would satisfy requirements of financial cash levels for 12 months following the audit.  The County Council could see a reduction in revenue collection in some areas and also an increase in costs for care and transport.  COVID-19 would have an impact on financial planning for 2020/21.

1.11   Mr Mathers reported that there was a proposal from CIPFA for the simplification of accounts in response to COVID-19, with the reporting of just key balances and returns; with a simplification of balance sheets.  EY would monitor the situation and considered that changing practices to the simplified arrangements may not be the best approach.  POST MEETING CLARIFICATION – it has been confirmed that there will no change to previous years.

1.12   Mrs Thompson explained that the Value for Money risks had already been considered in the plans and work would continue on this.  The 2019/20 work assessed 1 April 2019 to 31 March 2020 and so the majority of the COVID-19 impact was not included.  This would be picked up in the 2020/21 audit.  EY felt it would not be appropriate to critique the business continuity plans and accepted that the current primary focus for the County Council was core functions.

1.13   Mrs Thompson explained that the outlined fees were always the best estimate.  If changes were required this would be raised with County Council officers.  Mrs Thompson explained that fees had been reducing for a while and had hit an unsustainable position; with fees 60% lower than 8 years ago but with increased expectations.  It was therefore expected for audit fees to rise.  The Public Sector Audit Appointments Limited (PSAA) had recently reviewed the audit market to understand the market pressures and the 2020/21 fees were recently issued in line with the previous year.  EY resolved to keep the committee members updated.

1.14   Members queried if the change in deadline and CIPFA proposals would require a change in the committee meeting cycle.  - Ms Eberhart, Director of Finance and Support Services, proposed that it could be sensible to schedule an additional meeting towards the end of September in case it was required.  Mrs Thompson explained that it was not currently clear if the CIPFA proposals would be optional or mandatory.

1.15   Members had submitted questions on Children’s Services with regard to Value for Money and business continuity plans.

1.16   Mrs Thompson explained that EY’s consideration of confidence in the service would be made when the review work was completed.  The responses to the inspections were being looked at and consideration was being given to cost and if they were one off or continuing.  Continuing costs would need to be considered as part of wider financial plans.  The National Audit Office (NAO) would be issuing guidance on how to consider the impact of COVID-19.  The impact consideration would be reported on at a future committee meeting.

1.17   Members had queried Internal Audit and if there were any limited assurance reports that should be brought to the members’ attention, or any areas that should be considered by Internal Audit.

1.18   Mr Mathers commented that all limited assurance reports should be of interest to the Committee members.  The Committee needed to consider how it responded to the reports, and how it held officers to account.  Mr Mathers also explained that it was not for EY to dictate the work of Internal Audit, and that Internal Audit needed to respond appropriately to risks.

1.19   Members had submitted a query on EY’s thoughts on Whole Council Design.

1.20   Mrs Thompson explained that this had not been considered in detail as County Council structure was for members’ consideration.  Change in senior officers had not helped and so stability was recommended.  The appointment of Becky Shaw as Chief Executive was seen as a positive step.  Ms Eberhart reported that Whole Council Design had been scheduled for scrutiny at the Performance and Finance Scrutiny Committee, but this meeting had been cancelled due to COVID-19.  It was noted that COVID-19 had led to rapid consideration of some ways of working, such as the paper based / remote working.

1.21   Members commented on the recent departure of the Executive Director of Adults and Health and how this may impact the Council.  – Mrs Thompson commented that this was very recent news and so EY had no comment, but noted that social care was a current area of high pressure.  Mr Hunt, commented that the Cabinet Member for Adults and Health had spoken with the new interim officer and had expressed confidence in him.

1.22   Members raised queries for the Pension Fund Triennial Review and if the current market situation would impact scheme funding.

1.23   Mr Mathers explained that the valuation would have considered the markets before the impact of COVID-19.  Year end balances would be sent to the actuary and so the impact on pension liability could be considered.  Private equity was a different area, but represented a small element of the total pension fund.  A bounce back of markets was expected and so it was important not to initiate a knee jerk reaction.  The pension fund would need to consider the overall impact COVID-19 had on scheme funding and contributions.  Members commented that equity may see a longer effect which could impact the next valuation.  Mr Hunt, confirmed that he had recently updated Pension Panel members to say that the pension fund was 97% funded and so still in a healthy position.  There were no plans to revise any arrangements at the current time.

1.24   Resolved – The members in attendance note the plans for main Council and Pension Fund and confirm their understanding of, and agreement to, these materiality and reporting levels.  The members also agree to the scheduling of an additional reserve committee date in September.