Agenda item

Report of Grant Thornton, external auditor

Peter Barber of Grant Thornton introduced himself as the appointed auditor for 2022-23, having taken over from Alex Walling, the appointed auditor for 2021-22.  He highlighted the following points:

-       having undertaken supplementary work on group accounts, including the airport, and further work around property, plant and equipment and council dwellings evaluations, CBC’s 2021-22 financial statements were given a ‘clean’ unqualified opinion on 03 October and signed off by the external auditors;

-       public sector auditors have a secondary responsibility to issue a value for money (VFM) conclusion on the council’s arrangements, looking at three areas defined by the National Audit Officer;

-       financial sustainability – balancing budgets in medium term, delivering to budget, budget monitoring;

-       governance – the committee and internal audit play a vital role in ensuring the council’s decisions are based on complete, timely and accurate information;

-       economy, efficiency and effectiveness – ensuring that CBC is delivering services in the most effective way; 

-        Grant Thornton and CBC officers have agreed that the VFM work for both 2021-22 and 2022-23 will be combined in a single report; this is progressing well; the draft report should be ready by week commencing 12 February, with the final version brought to the next meeting, completing the VFM responsibility for both years;

-        this just leaves the 2022-23 financial statements, and as Members are aware, wide sector challenges have resulted in significant backlogs throughout the country.  The government has explored a number of solutions and, subject to final confirmation, has indicated that all audits not complete by the end of September a backstop will be set for 2022-23 and prior years;

-        Grant Thornton and CBC’s finance team agree that, due to a number of challenges and pressures, the 2022-23 audit cannot be completed by the end of September, and that, subject to final confirmation about the actual backstop date, CBC’s 2022-23 statement of accounts (issued by CBC on 31 May 2023) will be signed off by Grant Thornton with a disclaimer, the nature of which will depend on how far work has progressed at that time;  

-        this will allow the new auditors, Bishop Flemming, to make an early start on the 2023-24 accounts, recognising that further audit work to confirm the opening balances will be required – 2023-24 accounts to be complete by the end of May, with the auditors’ accounts signed off by the end of September.

 In response to Members’ questions, PB confirmed that:

-       Grant Thornton will conclude the VFM work on the 2022-23 accounts in the next few weeks, to share with Members at the next meeting; 

-       regarding audit fees and coverage if the accounts are disclaimed, Grant Thornton has made limited progress on the 2022-23 audit so far, and discussions are underway on behalf of CBC and other councils to determine what ramifications the disclaimer has on its fee.  A lot of audit time and officer time has already been incurred, and a judgement will need to be made as to whether further work is undertaken, knowing that the audit will not be completed;

-       if there are only one or two areas outstanding, a limitation of scope can be issued, stating that the accounts present the council’s position fairly with the exception of xyz.  If there are too many exceptions, however, and sufficient assurance can’t be given, a qualified opinion must be issued, which rolls through and affects future years’ audit work;

-       regarding the timeframe for the 2023-24 accounts and the new auditors, the financial year ends on 31 March, the council will have two months to produce its accounts, and the new auditors will have four months to audit them.  This is a tight timeline, and some councils are unlikely to achieve it, but there is a drive to reset and get back to timely audits;

-       if Grant Thornton issues a complete disclaimer on the 2022-23 accounts as there is too much outstanding,  the new auditors will have to carry out some additional audit procedures to get assurances on the 2023-24 opening balances;

-       it is important to be aware of the reasons for the backstop proposal:  auditing teams are required to carry out multiple times more work than ten years ago with fewer auditors, and the demands on council finance teams, where resources are already limited, have increased significantly. These challenges with capacity on both sides have resulted in the delays, and the backstop provides the opportunity to re-set;

-       Members can be reassured that the 2021-22 audit was positive, with not many material errors and no indication of inappropriate accounting, unlike the many councils which are facing problems.

The Director of Finance and Assets continued to explain that the backstop is a pragmatic solution to get local authority accounts back on an even keel across the board, and Members should take comfort that CBC only needs to backstop one year rather than several.  He made the following points:

-       CBC is an ambitious council and not easy to audit; our accounts are not standard and come with a multitude of complications: it includes several entities (airport, CBH, Publica and Ubico) which all need to produce accounts, and over £0.5billion-worth of assets, including the Pump Room and Town Hall which need revaluating despite the fact that the council will keep them in perpetuity; as a member of the Gloucestershire Local Government Pension Scheme, regular revaluation reports are needed and have to be audited; and the council’s 5,000 homes require regular valuation;

-       the new auditors, Bishop Flemming, are keen to get started on the huge agenda, including the Golden Valley development and the return of CBH.  Grant Thornton as a firm will need to concentrate on the NHS for three months, and will not have resource available for local authorities, and could attempt to audit two sets of accounts at the same time, put in an enormous amount of work, then not manage to conclude one element and have to issue a disclaimer.  A backstop is the right decision.

In response to further Member questions, PB said that:

-       lack of audit resource is not the only factor causing the backlog of work.  There are very high demands on finance officers across many councils, with both audit firms and councils trying to recruit from a limited pool of resource;

-       the backstop is an amnesty, but there is clearly a need to step up on all sides, recognise the need to get back to timely reporting and the ramifications of missing deadlines.  In the past, there have been no real consequences if a council doesn’t produce its accounts by the end of May or if auditors don’t sign them off in a timely manner, but councils and auditors are now being encouraged to question why and exert more pressure to ensure work is delivered to the earlier timetables.

The Director of Finance and Assets added that part of the reason for today’s recommendation for a backstop is a response to the plans to sell the airport and bring CBH back in house -  these two decisions will simplify CBC’s accounts, and with the addition of CBH’s finance team to ours, this is a great opportunity to re-set and ensure that we are not in the same position in the future.

The Chair commented that it was disappointing to note in the CIPFA report that public sector sustainability reporting frameworks are inconsistent and confusing, and worrying therefore that there is no proper financial  understanding of the consequences of climate change and other biodiversity issues when decisions are being made.  A Member agreed, noting that the SWAP audit summaries refer to the need to consider climate change as a disruptive force which will increasingly be a part of how we consider risk management.  She wondered if the CIPFA findings could be considered for the work programme, with some sort of mitigating strategy that can be implemented in a straightforward way.