Agenda item

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.

Discussion:

This report provided details of the Draft Statement of Accounts 2019/20 as set out in Appendix 1 to the report and also provided an update on the ongoing audit by Grant Thornton with their Audit Findings Report, as set out in Appendix 2 to the report, which had been included in Supplementary Agenda No.1.

The Chief Finance Officer paid tribute to both the Finance team and the Auditors for undertaking this work during difficult circumstances as a consequence of the pandemic. He explained that the Statement of Accounts were not quite concluded at this stage and referred the Committee to the recommendations set out in the report to take account of this.

The Engagement Manager, Grant Thornton, highlighted that working remotely had made matters more time consuming, therefore, the work had not been concluded thus far. He expected that a number of Local Authorities around the country, potentially including Medway, would not meet the 30 November deadline this year as a consequence of the pandemic.

He informed the Committee that conclusions had been reached in a number of areas but further work was required elsewhere. He also referred to where agreement had been reached to make changes to the financial statements. He advised the Committee that at this stage, the Auditors had not found anything which would alter the audit opinion, therefore, he anticipated giving an unqualified audit opinion. He also advised the Committee that the final audit opinion would include an emphasis of matter paragraph, given an issue relating to the valuing of plant, property and equipment. He also referred to risks relating to Minimum Revenue Provision and Value for Money.

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

Minimum Revenue Provision (MRP) – in response to a question reflecting the difference in opinion between the Council and the Auditors on the approach taken with the MRP, the Chief Legal Officer advised the Committee that the Auditors had raised the issue of the decision taken by the Chief Finance Officer on the MRP, and the Chief Legal Officer had reviewed this decision. Having discussed matters with the Auditors and the Chief Finance Officer, the Chief Legal Officer accepted that there were differences between the Auditors and the Council on this matter and that the Council was entitled to take the decision based on the law and the guidance it had sought.

Pensions liabilities – in response to a question around the likelihood of material changes to the Council’s pensions liabilities, the Engagement Manager, Grant Thornton, referred to the work undertaken on this matter (page 22 of the addendum report). He advised that the Council used an Actuary to arrive at the calculation. The Auditors also used an Actuary to review this work which helped reach a conclusion. He advised there were no current concerns, however, this work was not quite finished yet.

Reserves – in response to a question on the level of reserves, the Engagement Manager, Grant Thornton, referred to pages 30-35 of the addendum report which set out the Auditors’ views on the Council’s arrangements for financial sustainability. He advised that whilst the Auditors were of the view that the Council’s reserves were not at the upper end (of Local Authorities), it was not for the Auditors to comment on whether the Council’s reserves were adequate or sufficient and that this was a matter for the Chief Finance Officer, in his capacity as the Section 151 Officer. He advised the Committee that, dependent on Government funding, there was the potential for the Council’s reserves to be reduced to a dangerous level.

The Chief Finance Officer advised the Committee that there was a strategy to rebuild reserves, as set out in the Medium Term Financial Strategy and that more money had been added to the reserves in the past couple of years. However, the risks associated with the pandemic would impact on these ambitions. In addition, he advised that he sought to rebuild reserves gradually over time, balancing this against the need to continue to deliver front line services.

Pentagon Centre – in response to a question regarding the revised categorisation of the Pentagon Centre as “other land and buildings” (Note 21 to the accounts), the Senior Manager, Grant Thornton, confirmed that on the basis of the Council’s investment in the Pentagon Centre, it had not been categorised correctly and this had now been fixed. The Head of Finance Strategy confirmed that this was the case and that the accounts now reflected the correct category.

Parish Council precepts – in response to a question as to the increase in precepts of 5%, the Chief Finance Officer advised that Parish Councils were not subject to the same referendum limits as Medway Council, therefore there was the ability for Parish Councils to set higher council tax increases.

Unpaid invoices and pension costs – it was agreed to answer detailed questions on these matters outside the meeting.

Collection of Council Tax and Business Rates – in response to a question regarding the projected shortfall of £18 million for 2020/21 and how this would be addressed going forward, the Chief Finance Officer advised that the Council’s initial reporting to Government during the early part of the pandemic had included matters such as collection rates and the Council had initially reported a worst case scenario on this issue. Subsequently, the Government’s financial support for Council Tax and Business Rates payers had meant that the Council had not experienced the impact on the collection fund as initially expected. He referred to the assumptions set out in the Medium Term Financial Strategy recently reported to Cabinet which reflected a slight decrease in Council Tax collection and an increase in Business Rates collection.

In response to a question on whether there could be a lag into next year on collection rates owing to an increase in unemployment, the Chief Finance Officer stated that an estimation was made around collection rates and that the Government would now allow any in-year losses to be spread across three years but he did not anticipate significant in year losses, subject to any changes in the level of Government support going forward.

Medway Commercial Group – in response to a question relating to the repayment of the £4 million debt, the Chief Finance Officer advised the Committee that a new Chief Executive and Board was now in place to build the business and improve performance. The Council had recently agreed to advance a loan to MCG to repay the debt on a long term basis to sustain the long term future of the company.

Group accounts – in response to a question on materiality, the Head of Finance Strategy and the Chief Legal Officer confirmed that the Council had worked with the MCG and Medway Development Company Boards to discuss these issues and that group accounts would be produced for the next financial year.

Decision:

(a)  The Committee noted the issues raised and judgements made by the Auditor as presented at Appendix 2 to the report.

(b)  The Committee approved the Statement of Accounts 2019/20 at Appendix 1 to the report, subject to amendments agreed by the Chief Finance Officer with the Council’s Auditor, and noted that if any material amendments are required after the meeting by the Council’s Auditor, the Chairman will be asked to approve a revised Statement of Accounts 2019/20 on behalf of the Committee.