Agenda item

Grant Thornton

Peter Barber of Grant Thornton (GT), introduced the report as circulated with the agenda.  He explained that the report highlighted key findings and opinion on the financial statements.  Page 5 of the report identified areas as being ‘yet to be finalised’, though he was able to report that progress had been made in all areas, with most now being complete.  GT had not identified any adjustments affecting the overall accounts or any material errors, however GT had recommended a number of adjustments which they felt would improve the presentation of the financial statements.  He referred to the timing of the audit which had been a month earlier than last year and a year ahead of the statutory timetable change, as the council had been keen to demonstrate their ability to achieve the earlier deadline.  He commended this achievement, as well as the good standard of responses GT had received to any queries.  GT anticipated being able to provide an unqualified audit opinion in respect of the financial statements but stressed that the audit was not designed to test all internal controls or identify all areas of control weakness, however, he did draw members attention to the two control issues that had been identified on page 6; minor IT control weaknesses and journal entries posted by the Section 151 Officer, though this recommendation had since been implemented.  In relation to Value for Money (VFM), GT had to satisfy themselves that the council had put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources and he was pleased to report that GT had concluded that the council did have proper arrangements in place to ensure the it delivered value for money in its use of resources.  

Sophie Morgan, also of GT, proceeded to provide more detail and context to the audit work that had been undertaken.  She explained that when performing their audit work, GT applied the concept of materiality and overall materiality had been determined to be £1,646,000 (2% of gross expenditure), though this figure was lower for more sensitive disclosures including Audit fees and officer remuneration and exit packages.  She referred members to pages 10 - 14 which detailed the risks which had been identified, though the two detailed on page 10 were presumed significant risks which were applied to all audits under auditing standards. Also detailed on these pages was the work that had been undertaken and the details of the assurances that had been gained and any issues arising.  As significant components of the Group, a targeted approach was taken in relation to CBH and Gloucestershire Airport, though no significant issues were identified in relation to the significant risks of the group audit. She noted that the Airport had not previously been included but since commencing reporting under the FRS102 financial reporting framework in 2016/17, there had been a significant increase in the value of the Airport’s assets, which had led to them being treated as a significant component of the Group.  The committee were advised that GT had now received positive confirmation from all third parties and in terms of the issue of IT controls identified on page 20, the work was in progress, though Publica was still yet to be tested.  One disclosure change had been identified after the report had been submitted on the 8 September and this related to a lease disclosure; the figure for the Delta House lease was missing but she reported that this had not impacted the balance sheet.  She confirmed that the main consideration for GT in arriving at the VFM conclusion was the Council’s MTFS and the key findings against this significant risk were detailed on page 26 of the report and GT had made two recommendations relating to the MTFS.  Confirmation that certification work on pooled receipts could commence had not yet been received by GT since the submission of this report and this explained why the fee had been marked as ‘TBC’ on page 29.  Pages 34 and 35 set out all recommendations contained within the report and included management responses for each, and page 36 confirmed that GT anticipated providing the council with an unmodified audit report.  

The following responses were given to member questions; 

• A member was concerned that statements such as “The culture and ethical frameworks of local authorities, including Cheltenham Borough Council, man that all forms of fraud are seen as unacceptable” and “As set out in the audit plan, we do not consider this to be a significant risk as our experience shows that expenditure is well controlled and monitored” gave the impression that because something had been right in the past, an assumption had been made that it was right this year.  The GT Auditors responded by reminding members that a set of presumed risks were applied to every organisation and GT did not consider these to be significant risks at CBC; because there was not an inherent risk to manipulate revenue to show profits and officer pay was not performance related as was the case in businesses.  This was not to say that no auditing had been undertaken in these areas, it had, but it was simply not considered a significant risk.
• Testing of revenue cycles was risk based and as such GT undertook testing in totality in relation to Council Tax; but with an increasing number of other revenue streams sample testing was undertaken.  GT were not permitted to rely on Internal Audit work, but would monitor this and take account of it and members were reminded that if a large number of frauds were identified, this would ultimately impact upon the Statements.
• The FRS102 financial reporting was a new accounting framework which was imposed on the commercial sector, which had resulted in changes to how investment property was valued and subsequently resulted in a significant increase to the value of the Airport’s assets.  It was noted that the ramifications of this were dependant on the type of assets held by an organisation.
• Cash handling was considered less of a risk in terms of revenue cycles, with income being recognised within the wrong period being a bigger risk.  Deliberate misreporting of accounts was fraud. 

The Chairman was reassured by the fact that there were no minor adjustments to Property Plant and Equipment valuations, as had been the case in previous years and the committee welcomed the findings by GT. 

No decision was required.  

Kind regards