Agenda item

Report of external auditor, Bishop Fleming

TO FOLLOW

Nathan Coughlin of Bishop Fleming, appointed auditor for 2023-24, introduced the report as published. He highlighted the following points:

• Due to Grant Thornton giving a disclaimed opinion for 2022-23, a disclaimer opinion has been provided for 2023-24. This reflects that the prior year accounts, opening balances and comparatives were not audited so Bishop Fleming have not been able to take assurances over these areas. Assurances will be built back over financial statements, balance sheets and reserves going forward.
• Financial statements were signed off by Grant Thornton in December which created a tight deadline for the backstop date in February. Initial focus has been on the balance sheet as this reflects the financial position as of March 2024.
• A number of areas on the balance sheet have not been examined, primarily relating to valuations. In agreement with management, full valuations will be carried out at March 2025 year-end. Work has been carried out on additions and disposals.
• Detailed testing has not been carried out on the consolidation but underlying testing has been carried out around Cheltenham Borough Homes (CBH). Bishop Fleming are also the external auditors for CBH so have assurance over the related numbers and will be comfortable when this is reviewed next year.
• There was little value in spending significant time on assessing the value of investment in Gloucestershire Airport. Greater clarity on the valuation that can be achieved will be available next year due to its commercial sale, which will be included in the group financial statement.
• There’s a lack of clarity across the sector on how to build back assurance on the reserves due to the number of reserves and the complexity of the accounting treatments. A number of technical leads and accounting firms are working with the Financial Reporting Council (FRC) on how to progress beyond this position. A technical solution is expected to emerge in the next year.
• There are some minor amendments and cosmetic changes still required to the accounts which are being carried out by management to ensure they are as correct in terms of the Accounting Standards as possible by the deadline. Approval is sought subject to these changes so that the documents can be signed later in the week.
• One area of significant adjustment is connected to the accounting for the pension fund. A very complex accounting area that has moved over recent years, particularly in relation to net asset positions in the balance sheets. The actuaries first calculation of the council’s share showed a net position of £9m but after the application of an asset ceiling, which takes into account additional contributions in the future, the scheme’s overall deficit results in a negative valuation. That final adjustment takes it down to a technical accounting liability of £24m. There was also a £1m unfunded pension liability which needs to be recognised within the balance sheet.
• Minor control recommendations have been made, reflecting that things are generally well controlled throughout the organisation.
• He thanked the Finance Team for their level of engagement and collaboration throughout the audit process.

The following responses were received to Members’ questions:

• If there is no clear resolution to the reserves question then a ‘qualified, except for’ opinion may be issued in the future as an interim position. There will be more time to process the accounts over the next year as they will be ready by the end of June. It is intended that a full balance sheet and income and expenditure review will be completed in 2024-25, with assurance provided on comparatives in 2025-26. With the possible exception of reserves the council will then be in a comfortable assurance position.
• Due to the council choosing to make additional pension contributions of £2m annually over the last 3 years, the Accounting Standard requires  an ongoing contribution (liability) to be recorded across the average expected lifetime of people within the scheme. For example, if the expected lifetime is 15 years the asset position would be reduced by £30m leading to a deficit position. However, this is a technical accounting adjustment and it is important to remember that before this adjustment the council’s share of the assets were greater than the share of liabilities, showing a decent position. The triennial evaluation will be carried out in March 2025 which will determine what future contributions are required.
• In relation to Value for Money no significant weaknesses have been identified in the areas that have been reviewed, including systems, controls and transactions. It should be noted that land evaluations, some transaction testing and income expenditure has not been carried out.
• The committee confirmed they were satisfied with the independence of the external auditors and the results issued.

There was no vote on this item.