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The Committee received the report of the Cabinet Member with responsibility for Resources which presented Ernst and Young's (EY) 2018/19 Annual Audit Letter for Waveney District Council.
Debbie Hanson stated that this report had the same background as the Suffolk Coastal report and she highlighted, in particular, Section 3 which contained the key findings in relation to the financial statements audit. She explained that there was no update for the Annual Results Report for Waveney as there had been no additional update since it was presented to the Committee in September 2020. Members noted that EY had issued an unqualified opinion for the financial statements audit and value for money conclusion on 10 December 2020 and their certificate concluding the audit had also been issued at the same time in relation to Waveney.
The Committee was informed that the first two risks EY had noted in relation to their audit was the misstatements due to fraud or error and the inappropriate capitalisation of revenue spend but no issues were identified in relation to those two areas. In relation to the valuation of land and buildings, Ms Hanson stated that there had been an error in relation to community assets which had been included in the accounts at a value of £617,000 but in their view this was an incorrect value and it should have been valued on an existing use basis with a value of £0. Management had corrected this and put it in as a prior period adjustment and amended the comparative information in 2017/18 but, although EY agreed with the nature of the error, they felt that it did not meet the definition of a prior period adjustment because the error was immaterial and was not, therefore, fundamental to a reader of the accounts so, in their view it should have just been adjusted in the current year rather than as a prior period adjustment. With regard to the pension liability valuation, Ms Hanson explained that this was due to legal cases and timing of the estimates undertaken by the actuary but had not been amended as it was not material. EY had also noted the authority had incorrectly shown a figure for the increase in available for sale financial assets but, again, this was not material and, therefore, not amended for. Ms Hanson reminded Members that she had talked through the going concern assessment and disclosures when the Committee had considered the Results Report.
Ms Hanson concluded that there was nothing else to draw to Members' attention in the report and she reiterated that there had been a positive outcome in terms of the unqualified opinion and certificate issued in December.
The Chairman referred to page 58 of the agenda and queried an additional charge of £8,400 in relation to Housing Benefits charges. Ms Hanson responded that there was a base charge for this work and then, as part of the audit, 25 cases were tested and if there were then errors found in that testing or in the prior year, a further sample of 40 cases would be tested to address the specific error so the final fee for Housing Benefits depended on the final amount of testing undertaken, therefore, the charge could vary each year. She added that, if there were fails and extended testing required, a report had to be made to DWP for which an additional fee was charged.
Councillor Cooper queried the audit fees and whether it would be the same figure next year. Ms Hanson clarified that the £73,000 was the total fee including the work on the housing benefit claim and the audit but she pointed out that, as the housing benefit fee varied, she did not know next year's total fee yet. In relation to the audit, she explained that the PSAA set the audit scale fee of £41,406 and this was the same for 2019/20, however, EY had made representations to the PSAA to increase the scale fees because they did not feel they had kept pace with the changing regulatory environment and the extra audit work required to be taken eg more specialists being involved in an audit such as valuers. Ms Hanson reported that the PSAA was still deliberating on their proposal to increase the scale fees for 2019/20. She added that the impact of Covid was also unknown in relation to its effect on the extra work needing to be undertaken in 2019/20 and the risks would roll forward to 2020/21. This meant that the current base figure for 2019/20 was £41,406 but EY expected that they would make proposals to the PSAA to increase this figure due to the extra work needed as a result of Covid to address the risks from that.
Concern was expressed that this meant the Council would not know the fees until after the audit had been carried out. Ms Hanson responded that EY had shared with Officers what they thought the base fees should be. She also pointed out that these fees were for Waveney but they had been reset by the PSAA for East Suffolk. She added that the Finance Team were aware of the starting point relating to the fees and EY could share estimates of what the fee would be as things came up but until the work was undertaken it was not possible to know what was required because the issues and errors identified through the audit were unknown. Clarification was sought as to whether the fees were negotiable and Ms Hanson responded that the process was that they tried to agree them with management and the PSAA who would ask what kind of work had been undertaken, the number of hours spent, what grade of staff had been involved etc. The PSAA would then set an hourly rate and Ms Hanson pointed out that this would be much lower than those set for EY's corporate clients.
The Chairman referred to the fact that part of the additional £6,000 fee was due to staffing issues at EY so he queried whether this would be an additional fee on 2019/20 audit as well as paying it in 2018/19. Ms Hanson responded that EY would still have to do work in relation to 2019/20 because the going concern assessment covered a period of 12 months from the date of the audit report, so if they were completed in February 2021 then the work would need to look forward to February 2022. She added, however, that this time the Council knew what information would be needed in respect of the going concern assessment so it should be less onerous than the first time the process was undertaken.
The Chairman reminded the Committee that the 2019/20 accounts were due to be considered at their next meeting in March 2021 and he queried if EY would be able to complete their audit in time. Ms Hanson responded that EY were making good progress on the audit so she was confident the audit would be completed subject to the review of asset valuations being completed in time.
Councillor Byatt expressed his Group's thanks to the Finance, Audit and EY Teams for their hard work in ensuring that there was nothing of concern in relation to Waveney's accounts, particularly in relation to value for money.
On the proposition of Councillor Cooper, seconded by Councillor Cloke, it was
RESOLVED
That, having considered and commented, the Committee noted the key findings within the External Auditor's Annual Audit Letter for the year ended 31 March 2019 in respect of Waveney District Council.