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The Committee received report ES/0972 of Councillor Edward Back, the Assistant Cabinet Member for Resources, which presented Ernst and Young's (EY) 2019/20 Annual Audit Letter.
Councillor Back introduced the report which presented the key issues identified by the External Auditor, Ernst & Young, following completion of their audit procedures for the year ended 31 March 2020. Councillor Back confirmed that detailed findings from EY’s audit work had already been reported to the Audit & Governance Committee via the Audit Results Report on 15th March 2021, with an additional verbal update on 28th June 2021. These findings had not been repeated in the annual audit letter.
The Chief Finance Officer confirmed that the proposed fee variation for the 2019/20 financial year was £39,360, in addition to the Public Sector Audit Appointments (PSAA) agreed fee of £69,964. £22,320 of this variation had been agreed to in recognition of the fact that additional work has been necessary in addition to that included in the original PSAA fee. However, the remaining proposed £17,040 had not been agreed, and had been referred to PSAA.
The Chief Finance Officer asked Ms Debbie Hanson, Associate Partner at Ernst & Young LLP (EY), to provide a summary of the audit letter and fee changes. Ms Hanson clarified that EY believed that scale fees had not kept up with the additional work now required for the annual audit, this additional workload had therefore been included in the fee variation. The additional work areas were a result of both the Covid-19 pandemic and the 2019/20 year being the first year that East Suffolk Council had been in existence. Ms Hanson confirmed that fee elements were with PSAA for approval, along with the Council's comments, and an update was awaited on the final fee.
The Chairman asked Ms Hanson to confirm why additional time had been added to costs due to EY staff working from home. Ms Hanson confirmed that staff had been unable to come into offices to do the audit in the usual way and this had presented challenges, which were reflected in the additional costs. Although there were savings for individuals, this was not a saving for the firm. The Chairman argued that travel time had been saved in coming to East Suffolk Council offices in person, and that he felt that the costs should even out. Ms Hanson confirmed that expense costs had never been passed on to the Council under the contract with PSAA, and that savings had not been outweighed by extra costs.
Following a question from Councillor Gandy on why fees had increased due to regulatory requirements, Ms Hanson confirmed that EY had first discussed this with PSAA in 2019, and that these changes had occurred before Covid-19. They reflected the higher level of work required from regulators around what audits should include. These costs had been separated out for clarity, and EY believed these costs should be included in the base fee going forward.
Councillor Cooper asked why the issue of the new accounting standards in respect of leases referred to in the report had been delayed and expressed concern over the lack of knowledge on leases. Ms Hanson confirmed that this had been deferred for the third time due to Covid-19 as the new auditing standard required more in-depth consideration of leases. At present EY had no issue with the disclosure of leases, but requirements were changing and so more work would need to be done going forwards. The Chief Finance Officer confirmed that this was not an issue specific to East Suffolk and that all Councils would have to go through this process, and the new regulations would apply from 2022/23 onwards. The Council were working towards this and expected to meet the deadline.
Ms Hanson invited Mr Ghulam Hussain, Audit Manager at Ernst & Young LLP, to confirm the timeline for the final audit for 2020/21. Mr Hussain confirmed that there was outstanding work to be done on pensions, Going Concern disclosures and value for money arrangements, which would largely be completed by Christmas. The review would be completed in the New Year and the completed audit would be completed by the end of January.
On the proposition of Councillor Coulam, seconded by Councillor Richardson it was by a unanimous vote
RESOLVED
That the Annual Audit Letter for the year ended 31st March 2020, along with the additional fee analysis be noted.