Agenda item

Grant Thornton (final to follow)

Barrie Morris of Grant Thornton (GT), introduced the report as circulated with the agenda, which summarised the key findings from the statutory audit of CBC and the preparation of the group and council’s financial statements.  He noted that:

• The expectation was that the accounts for Cheltenham Borough Homes would be agreed the same evening
• GT anticipated being able to issue an unmodified and unqualified audit report on the financial statements.
• They also anticipated issuing an unqualified value for money conclusion.
• There had been no objections from any member of the public.
• GT applied the concept of materiality and overall materiality had been determined to be £1,569,400 (2% of gross expenditure), which was the highest level which is permissible for the auditor to set.
• Triviality had been set at £80k, except Senior Officers’ remuneration which required a lower materiality due to the sensitive nature of these balances and therefore stood at £20k.
• There were two significant risks that related to all organisations: improper revenue recognition and management override of controls and no issues had been identified in respect of these issues at CBC.  
• In terms of the ‘Valuation of plant, property and equipment’ risk, GT had performed a robust challenge of the assumptions made by the valuer working on behalf of the council and used parameters to compare them against.  One issue had been identified in relation to the value of council dwellings and depreciation and this had required a significant adjustment of £15m, though he stressed that this had not impacted the bottom line as it was simply an adjustment to how the information was presented.  The council had made the adjustment.
• The council had invested in a number of investment properties and GT had tested whether these were considered appropriate, with no issues identified.
• GT highlighted the additional work that had been undertaken in regard to the valuation of pension fund net liability in light of the McCloud judgement. It had been ruled that there was age discrimination in the judges and firefighters pension schemes where transitional protections were given to scheme members. This would impact all public sector schemes, and could mean a possible increase in liability to the council of £0.4m.  No other issues were identified and no adjustments were required.

Sophie Morgan-Bower of GT highlighted the following points:

• The group audit included CBH and Gloucestershire Airport, but not Ubico or Publica.
• Despite having been recommended in the previous year, a formal lease was still not in place between Ubico and CBC for arrangements to lease recycling and refuse vehicles from the council to Ubico.  A member asked that an update on this issue be provided to the committee.   
• GT were happy with the appropriateness of management’s use of the going concern assumption.
• In terms of the Value for Money (VFM) work, GT had raised two risks.  The Medium Term Financial Strategy (MTFS) was a common risk. GT had recommended that the Budget Strategy (Support) reserve be replenished by 2020/21.
• One minor additional disclosure point was noted, which was not noted in the AFR due to the timing of the report release, in relation to a corrected lease disclosure. This was a minor point.
• The other related to the governance of Publica.  GT recommended that the council continue to develop clarity on respective roles and responsibilities and continue to strengthen the communications process with Publica officers.  The management response was included in the final version.
• Housing Capital Receipts were audit related by their very nature.
• CFO insights posed a self-interest threat and had therefore been included for transparency. 
• Appendix B provided follow-up on recommendations from the previous year.
• Appendix C reported all non-trivial misstatements and the audit adjustments and this included the unadjusted difference relating to the McCloud judgement. 
• Fees and the additional audit fees were summarised at Appendix D and it was noted that the final fee had reduced from £49,500 last year, to £42,500 this year.

The following responses were given to Members questions:

·         This was the first time that the carry value depreciation had been identified and this had resulted in a technical adjustment (change in classification) with no effect on the bottom line. 

·         A similar recommendation to that made to CBC regarding the governance of Publica had been made to all partner organisations.

·         There was a split in terms of the McCloud ruling and the GMP equalisation, equating to £0.4m in total (unadjusted in the accounts).

·         There were people at CBC who would be affected by the McCloud judgement and therefore CBC was affected in terms of what it would have to pay over.  This was a complex issue which was subject to lots of discussion within the sector and no clarity as yet on how this would be funded. 

In response to a question from a member, the Executive Director Finance and Assets could recall a time when the external audit fee was in excess of £100k and accepted that as a consequence of the far reduced fee, there was less scope for additional work.  In terms of the McCloud judgement, it had generated work for himself and the council and therefore he was comfortable with the additional fee from GT.

No decision was required.