Agenda and minutes

Audit Committee - Wednesday, 28 July 2021 7.00pm

Venue: Civic Suite - Level 2, Gun Wharf, Dock Road, Chatham ME4 4TR. View directions

Contact: Wayne Hemingway, Head of Democratic Services 

Media

Items
No. Item

192.

Apologies for absence

Minutes:

There were none.

 

(The Chairman advised the Committee that Councillors Maple and Paterson had replaced Councillors Browne and Osborne on the Committee).

193.

Record of meeting pdf icon PDF 80 KB

To approve the record of the meeting held on 24 June 2021.

Minutes:

The record of the meeting held on 24 June 2021 was agreed and signed by the Chairman as a correct record. 

194.

Urgent matters by reason of special circumstances

The Chairman will announce any late items which do not appear on the main agenda but which he/she has agreed should be considered by reason of special circumstances to be specified in the report.

Minutes:

There were none. 

195.

Disclosable Pecuniary Interests and Other Significant Interests pdf icon PDF 371 KB

Members are invited to disclose any Disclosable Pecuniary Interests or Other Significant Interests in accordance with the Member Code of Conduct.  Guidance on this is set out in agenda item 4.

 

Minutes:

Disclosable pecuniary interests

 

There were none.

 

Other significant interests (OSIs)

 

Councillor Gulvin declared an OSI in agenda item 6 (Statement of Accounts 2019/20 and Audit Findings Report 2019/20) because he is a Director of Medway Development Company Ltd (MDC) and he relied on a dispensation granted by the Councillor Conduct Committee to take part and vote in any discussions.

 

Other interests

 

Councillor Hackwell disclosed that his wife is a part time tutor for the Medway Adult Education Service in relation to agenda item 6 (Statement of Accounts 2019/20 and Audit Findings Report 2019/20).

 

Councillor Maple disclosed during the meeting that during the period in question (2019/20), he had been involved with three organisations who were tenants in the Pentagon Centre, in relation to agenda item 6 (Statement of Accounts 2019/20 and Audit Findings Report 2019/20).

196.

Treasury Management Outturn Annual Report pdf icon PDF 760 KB

This report gives an overview of treasury management activity during 2020/21. 

Additional documents:

Minutes:

Discussion:

 

This report provided an overview of treasury management activity during 2020/21. The report stated that throughout the period the Council had complied with its legislative and regulatory requirements and it outlined the key actual prudential and treasury indicators detailing the impact of capital expenditure activities during the year, with comparators.

 

The Finance Business Partner – Corporate Services highlighted a number of key factors for Members’ attention. In particular, since the report had been presented to Cabinet on 13 July 2021, officers had received clarification from CIPFA that re-organisation debt owed to Kent County Council should not be taken into account when comparing external debt with the Capital Financing Requirement (CFR) but that repayments did reduce the CFR, therefore, this represented a better position than reported to Cabinet. He provided further information on the position relating to borrowing, highlighting that short term borrowing remained in favour. He also referred to the treasury position stating that of the £45m repayable in the year ending 31 March 2022 some £25m had been repaid by 22 June 2021. He also detailed other borrowing amounts as set out in the report.

 

He provided a commentary on investment performance highlighting that cash balances were kept low for day-to-day requirements. He also referred to the three property investment funds in-year performance, stating that two out of the three funds had delivered dividend returns which exceeded the capital losses on them.

 

Members then raised a number of questions and comments which included:

 

Public Loans Work Board (PWLB) loans – in response to a question whether there were better loans available to the Council for the financing of Capital Programme projects recently approved by Full Council, the Finance Business Partner – Corporate Services stated that rates would vary depending on when loans had been taken out and the duration of those loans. With regards to PWLB loans, he explained how those rates were set at a premium over equivalent gilt yields and he advised the Committee that the Council did receive a discount on the loan rates because they shared the plans for the capital projects with the PWLB. He further advised that PWLB had increased their rates in the last year in an attempt to dissuade borrowing by local authorities for purely investment reasons.

 

Brexit – in response to a question regarding the impact on Council finances, the Chief Finance Officer stated that there had been no impact on the Council’s treasury function so far, however, inflation could have an impact on the Council’s capital projects, which would have to be managed.

 

Historic Debt to Kent County Council (KCC) – in response to a question as to what might happen to this debt in a scenario where a new North Kent unitary authority was formed, the Finance Business Partner – Corporate Services advised that when Medway Council was formed it had taken on some of KCC’s assets which included a proportion of the related debt. Any new Council would be likely to be required to take on  ...  view the full minutes text for item 196.

197.

Statement of Accounts 2019/20 and Audit Findings Report 2019/20 pdf icon PDF 162 KB

This report presents the Draft Statement of Accounts 2019/20 for Medway Council presented at Appendix 1 and provides an update on the ongoing audit by Grant Thornton with their Audit Findings Report, presented at Appendix 2.

 

The Accounts and Audit Regulations (Coronavirus) (Amendment) 2020 require that the Audit Committee consider the issues raised by the external auditors prior to approval of the Statement of Accounts.

Additional documents:

Minutes:

Discussion:

 

This report provided details of the audited Statement of Accounts 2019/20 for Medway Council, as set out in Appendix 1 to the report. It also provided an update on the ongoing audit by Grant Thornton with their Audit Findings Report (AFR), as set out in Appendix 2 to the report. In addition, two addendum reports had been provided to Members on various matters.

 

The Finance Business Partner - Corporate Reporting highlighted a number of issues for Members’ attention including the fact that 91 Local Authorities still did not have their accounts for this period finalised (at the time of writing). He provided an update on the addendum reports including reference to some errors in the balance sheet which had now been corrected (although the net assets figure had been correctly stated).

 

The Key Audit Partner, Grant Thornton (GT), advised Members of the work undertaken with the Council since November 2020 and paid particular attention to the issue of capital additions, which had also impacted on prior years. He stated that this had been a complex audit and 16 recommendations had been made to the Council’s management which had been accepted and he thanked the Finance Team for their assistance and patience.

 

He referred to the issue of capitalisation of salary costs which did not follow accounting standards and that this had been a historic practice going back 6-10 years. GT had asked management to review this and estimate the costs for 2019/20 (and historically) by restating these costs in line with correct accounting standards. GT had reviewed this and determined it was not material for 2019/20 and previous years, therefore, these figures had not been adjusted in the AFR. He also referred to the schedule of errors as set out in the AFR. He concluded by stating that the process had almost been concluded and he advised the Committee that GT intended to issue an unqualified audit opinion, and this would include an emphasis of matter paragraph relating to property, plant and equipment values. He also referred to the management letter of representation which would highlight the issue of capital additions.

 

Members then raised a number of questions and comments which included:

 

Qualified conclusion (Children’s Social Care) – in response to a question to this reference (page 8 of Supplementary Agenda No. 1 refers), the Key Audit Partner, Grant Thornton, advised that the Auditor followed the National Audit Office’s code of audit practice which meant that the Auditor was obliged to take into consideration the findings of any relevant regulators which called into question the Council’s ability to provide efficient and effective services, therefore, on this occasion the Ofsted inspection was being referenced in this instance. This was set out in the Auditor’s report as an exception to the overall conclusion on the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources.

 

Frequency of changing Auditors – in response to a question relating to how regularly a local authority should change its Auditor, with particular  ...  view the full minutes text for item 197.

198.

External Audit Plan and Audit Fee 2020/21 pdf icon PDF 158 KB

This report presents the plan of Medway Council’s External auditors, Grant Thornton, for the audit of the Council’s Statement of Accounts for the financial year 2020/21, together with a proposal for an increase in the audit fee charged.

Additional documents:

Minutes:

Discussion:

 

This report provided details of the plan of Medway Council’s External auditors, Grant Thornton, for the audit of the Council’s Statement of Accounts for the financial year 2020/21, together with a proposal for an increase in the audit fee charged.

 

The Finance Business Partner - Corporate Reporting highlighted a number of matters within the report for Members’ attention. The Key Audit Partner, Grant Thornton also advised the Committee on the planned work for 2020/21 in the context of the delays in finalising the 2019/20 accounts as well as other factors, including the preparation of group accounts and materiality given the number of errors from 2019/20. He expected to start work on the audit in October 2021with an expected finish of December 2021. This would be a transition year with the hope that 2021/22 would return to normal. He highlighted particular risks around grants and capital addition and the treatment of salaries.

 

Members then raised a number of questions and comments which included:

 

Group accounts – in response to a question around group accounts, the Chief Finance Officer explained that the South Thames Gateway Building Control Partnership was a partnership between four local authorities and each element was reflected in each Council’s individual accounts. Medway Norse was a joint venture and group accounts were provided by NCS (Norse Commercial Service Ltd). 

 

Valuation of lands and buildings – in response to a question as to how heritage assets were valued, Finance Business Partner - Corporate Reporting explained how these types of assets were valued, noting insurance valuations were provided.

 

Grants – in response to positive comments around the Council’s award of grants during the pandemic, the Chief Finance Officer thanked Members for their comments.

 

Training – in response to a question around training for Committee members on value for money, the Chief Finance Officer undertook to look into a presentation to Members on this.

 

Sampling – in response to a question on the process of sampling year on year, the Key Audit Partner, Grant Thornton explained that each year, for example, in relation to debtors, he would ask for a complete transaction list and then sampling would be undertaken by the Auditor firstly based on judgement/knowledge and identifying anything which looked unusual and secondly, a random sample based on materiality and population size.

 

Decision:

 

The Committee noted the proposed Audit Plan for 2020/21 including the variation to the core fees from 2019/20 to the remainder of the contract.

 

199.

Annual Governance Statement 2020/21 pdf icon PDF 169 KB

This report explains the requirements for reporting and approving an Annual Governance Statement (the Statement) covering the financial year 2020/21, and asks Members to approve the Statement.

Additional documents:

Minutes:

Discussion:

 

This report provided details of the requirements for reporting and approving an Annual Governance Statement (the Statement) covering the financial year 2020/21. The Head of Legal Services highlighted a number of matters within the report for Members’ attentions.

 

During discussion, the issues of the process in place for the award of grants made during the pandemic and the number of urgency decisions taken in response to the pandemic were raised.

 

Decision:

 

The Committee commented on and approved the Annual Governance
Statement
.