Agenda item

The Committee is asked to consider the Audit Results Reports for the West Sussex County Council and the West Sussex Pension Fund from the External Auditor EY.

21.1   The Committee considered the Audit Results Reports for the West Sussex County Council and the West Sussex Pension Fund (copies appended to the signed minutes).

21.2   Mrs Thompson, EY, began by focussing on the West Sussex County Council report.  Work was mostly complete and any outstanding items were noted in the executive summary.  An opinion would be issued when the work was completed.  EY were anticipating issuing an unqualified opinion on the financial statements which would include an emphasis of matter paragraph covering uncertainties based on the valuation report.  The value for money conclusion was expected to have an except for qualification.

21.3   Simon Mathers, EY, explained that it had been a challenging year due to the impact of COVID-19 and passed on thanks to the County Council officers for their support with the audit.  The risk of management override had been investigated with particular focus on the recording of expenditure and capital spend.  EY were satisfied that there had not been any inappropriate usage.  The risk for Plant, Property, and Equipment (PPE) valuation had been inherently high due to the impact COVID-19 had on market volatility.  A caveat had been included from the external valuer which would be added as an emphasis of matter paragraph.  EY were happy with their testing of valuation processes and the approach taken by the County Council for cyclical valuations.  There were also high inherent risks for County Council disclosures for going concern and events after the balance sheet date.  The disclosures had undergone consultation and an emphasis of matter paragraph was not required.  Cashflow mechanisms had been analysed with the results showing that good arrangements were in place.  Work on officer remuneration disclosures had identified that recruitment and retention policies needed to be re-considered. An associated recommendation for improvement had been raised.

21.4   Mr Mathers spoke on Pension liabilities and how the statements had been adjusted for factors such as McCloud.  There had been asset valuation changes which had led to a £7.9m change in asset values.

21.5   Mr Mathers spoke on the Audit Differences section of the report and explained that the final version would be updated for PPE.

21.6   Mr Mathers discussed the two risks raised for Value for Money (VFM) assessments and explained that the report was not expected to fully cover a plan for COVID-19.  One risk concerned informed decision making linked to the inspections for Children’s Services and the Fire Service.  Good progress had been made, but the arrangements were not fully in place by the end of the year.  This resulted in the ‘except for’ qualification of the VFM conclusion.  The second risk related to sustainable resource deployment and considered whether the council would be able to continue to adapt its financial planning, monitoring and management arrangements to ensure it is able to continue to deploy the resources available to it sustainably over the medium term.   EY concluded that adequate arrangements have been in place throughout 2019/20.

21.7   The Committee made comments including those that follow.

•    Asked how property asset values should be represented if they have reduced in value since purchase.  – Mr Mathers confirmed that the report should reflect the current value of the asset.

•    Sought clarity on officer remunerations processes and policies.  – Mrs Thompson explained that the report was not commenting on specific posts.  EY’s work had identified areas where it had not been clear which policy was being applied and so improvements had been recommended.

•    Queried the concerns raised on PPE valuations and asked if other authorities were in the same position.  – Mr Mathers reported that COVID-19 had impacted market volatility and so generally speaking all authorities would be in a similar position.  Mrs Thompson added that this was not a new risk, but the risk had been elevated to significant.

•    Queried if the document should be in the public domain.  – Mrs Thompson confirmed the document was fine to be in the public domain.

•    Sought clarity over capitalisation of salaries from revenue for transformation work.  – Mr Mathers explained that the scheme rules allowed the outlined use of capitalisation.  Ms Eberhart, Director of Finance and Support Services, noted the concerns raised for the use of transformation funding and the impact this had on borrowing.  It was confirmed that the policy for this was approved as part of the budget and officers were working within approved practices.

•    Questioned the value of the Horsham Enterprise Park.  – Mr Mathers explained that the role of external audit was to ensure the statements met the current value of assets.  Issues would only be provided on assets if there was a risk of material misstatement in the accounts.

•    Asked if the consultation on going concern was complete.  – Mr Mathers confirmed that this was complete and the disclosures had been approved.

•    Queried when the procedures required by the National Audit Office (NAO) would be completed.  – Mr Mathers confirmed that the target date for this was the beginning of December.  An opinion would still be issued before this, but the audit could not formally close until this work was complete.

•    Questioned the length of time remaining for Private Finance Initiatives (PFI).  – Mr McEwan, Finance Manager (Accounting Systems and Control), reported that the PFI disclosures in the accounts confirmed that the final scheme expired within a 16 to 20 year time frame.

•    Queried if some lease agreements were considered nonmaterial and excluded from the audit.  – Mr Mathers explained EY were satisfied that the Council were recording lease arrangements correctly but that the ongoing work to ensure all lease arrangements were captured in the Council’s lease register needed to continue.

•    Sought clarity over the implications of McCloud.  – Mr Mathers confirmed that the liability for McCloud had previously been accounted for in 2018/19.  Now there was more clarity on remedies, the actuary had updated the figures.

•    Sought more detail on how the use of reserves was greater than the average level of reasonable usage.  – Mr Mathers explained that the data was based on submissions from all Councils.  The comparison showed that the County Council’s usage was greater than other Councils, but not yet in a position where EY would raise major concerns.  Ms Eberhart added that the usage of reserves was monitored carefully and compared with other authorities.

•    Queried why the County Council’s level of reserves were falling at a faster rate than others.  – Mrs Thompson responded that it was a difficult area to compare as it was difficult to know how other authorities used their reserves.  Reserves were held to be used when required, and the areas for Children’s Services, Fire Service, and COVID-19 had required the use of reserves.

•    Asked if the review of the Medium Term Financial Statement included the County Council’s Reset and Reboot plan.  – Mrs Thompson explained that EY had not looked at the detail of the Reset and Reboot plan as the VFM conclusion was focused on 2019/20.

•    Queried the identified scale of weaknesses in social work practice.  – Mrs Thompson explained that this risk was identified in response to the inspection work.  A wider aspect of informed decision making had been taken into account and not all service areas had been looked into for weaknesses.

•    Sought clarity over the VFM section where improvements for the Fire Service are recognised.  – Mr Mathers explained that the conclusion was an assessment of the corporate body.  Mrs Thompson agreed to look at the positioning of the wording in the final version.

•    Queried the meaning of the VFM assessment.  – Mrs Thompson explained that EY were required to assess whether proper arrangements were in place not whether the Council provides value for money.  Mr Mathers added that consideration had been given to the link between savings targets and overspending. 

•    Sought clarity over the flexibility of audit fees.  – Mrs Thompson expected an increase in fees following the changes recommended in the Redmond Review.  EY had outlined the additional work that had been undertaken in the year.  Discussions would take place with Public Sector Audit Appointments Limited (PSAA) if fee bases needed resetting.

•    Queried the £5,000 going concern EY consultation requirements fee.  – Mrs Thompson reported that this had been a consequence of COVID-19 and that the County Council was a large audit.  All processes had been discussed with the Director of Finance and Support Services.

21.8   Mr Mathers introduced the West Sussex Pension Fund report and explained there was an unqualified opinion.  The risks that had been looked into concerned management override, property valuations and ongoing concerns.  EY were satisfied that correct approaches had been taken and all disclosures were complete.

21.9   The Committee made comments including those that follow.

•    Queried if COVID-19 should have impacted the report if it covered the previous financial year.  – Mr Mathers explained that COVID-19 had been a global issue within the given financial year and so there had been an impact on valuations.  The going concern assessment would cover 12 months from November 2020.

•    Asked if the fees had been confirmed.  – Mrs Thompson explained that when the plan had been produced the fees were to be confirmed.  Additional work had taken place concerning data quality.

21.10 Resolved – That the Committee notes the Audit Results Reports for the West Sussex County Council and the West Sussex Pension Fund.