Agenda item

This report presents the opinion for the financial statements for 2024-25 and the findings of the Council’s External Auditors, Grant Thornton LLP, in their audit of the Council’s arrangements to secure economy, efficiency and effectiveness in the use of resources during 2024-25.

 Discussion:

The Public Sector Audit Senior Manager, Grant Thornton, introduced the report which presented the Auditors Annual Report, the Audit Findings Report and the 2024/25 Statement of Accounts. She stated that the focus of the review had been on income and expenditure testing and closing balances. A significant amount of testing had taken place during the audit period, however, the auditors had been unable to obtain the necessary assurance on the statement of accounts and the final audit opinion for 2024/25 would be a disclaimer opinion. She added that the auditors had been unable to carry out detailed work in relation to the new audit standard IFRS16.

The following issues were discussed:

Finance Capacity – in response to a question whether the finance department had resources to implement the required changes in process in time to complete the 2025/26 audit within the required timescale, the Chief Operating Officer outlined there were two key recommendations in the Auditors Annual Report related to financial sustainability and financial capacity. He acknowledged there was a capacity issue in the department to meet the challenges of those recommendations. A previous rightsizing exercise had provided additional capacity in relation to budget management following a recommendation by CIPFA. It was proposed to strengthen the corporate finance functions, and in addition the Council had to recruit to two senior management vacancies.

He outlined the proposed way forward. In relation to the role of Chief Finance Officer, the Council would explore the potential for a fixed term appointment through to Local Government Reform. In relation to the Head of Revenue Accounts a recruitment campaign would begin shortly, however, the finance department required additional capacity. To develop this capacity, a review of the finance functions would be undertaken to create efficiencies. This would enable the department to reprioritise and strengthen areas of need such as the Statement of Accounts and recovering debt.

Medway Development Company (MDC) – it was asked whether the MDC’s £10m deficit had affected discussion with the auditor regarding the Council’s stance in relation to the Minimum Revenue Provision. The Chief Operating Officer stated that the auditors were aware of the deficit which contributed to the Council’s financial position. The way accounts had to be presented meant that it was inevitable that MDC would report losses at this stage of its development with long term loans to build housing for the private rental sector. As rents increase he was confident the company would become profitable. The Chief Operating Officer had requested a future cash flow forecast from MDC in the next six weeks to provide the auditors with additional assurance as to the position of the company. He remained confident that the cashflow forecast would demonstrate that loans to the company would be serviced through the sale or rental of the assets over the long term.

The Chief Operating Officer added that the Council’s position regarding the status of Loans to MDC and minimum revenue provision remained unchanged.

Valuation of Council Dwellings - a Member requested additional information regarding the borrowing required as part of the HRA Capital spend over the next 30 years. He asked whether issues with valuation of assets could affect the Council’s ability to borrow the required monies for investment. The Chief Operating Officer stated that valuations had been undertaken but not audited, he was, however, confident in the valuation process that was undertaken. The Head of Corporate Accounts added that valuations were undertaken by fully recognised valuers so the Council was confident that the valuation was right and proper.

Closing Balance – it was asked how the Council could regain assurance over closing balances so disclaimer opinions would no longer be required, the Public Sector Audit Senior Manager, Grant Thornton added that the priority for audit for the year had been in year transactions. The auditors could then look towards regaining assurance through opening and closing balances. She added that the government was considering options to provide additional resources to authorities to regain assurance.

The Head of Corporate Accounts acknowledged that for 2025/26 we would have a shorter timeframe to complete the accounts and added that it was important for the Council to learn from previous audits and use its resources more effectively. This included the review of the finance function outlined by the Chief Operating Officer.

2025/26 Audit – a Member raised concern that the evidence required to support transactions which was not available for the 2024/25 budget would also be unavailable for the 2025/26 audit. The Chief Operating Officer acknowledged the potential difficulty as the majority of those transactions had already taken place, however, there was an opportunity to evidence the invoices prior to the beginning of the audit taking place and this would be a priority for the department.

The Head of Corporate Accounts added that the Council had received feedback from the auditors regarding what was required in terms of evidence and further work had been done on timetabling for the audit in the coming year. The evidence required was disseminated to those on the ground and the Council would start this year’s audit from a stronger position. The Chief Operating Officer stated that the Council was considering inviting internal audit to help with the audit process for 2025/26.

FIT Plan – in response to a question why budget monitoring was ‘in the red’ when 87% of the savings target had been achieved, the Chief Operating Officer stated that the plan highlighted the activity undertaken to make savings and the results had been positive. It disaggregated those results from the additional pressures on the Council from demand led services such as adult social care which was caused by external pressures such as the demand on the NHS. The FIT plan was delivering to target, however, those external demographic and inflationary pressures were greater than had been forecast.

Exceptional Financial Support (EFS) – the Committee discussed

whether EFS would be required in future years, the Chief Operating Officer stated that it was originally expected the Council would require three years of EFS, and that had been realised. The local authority three year finance settlement was more positive for Medway in years for 2027/28 and 2028/29 and he was confident that further EFS would not be required beyond the next financial year.

A Member commented that it was important that financial sustainability was recognised as a priority for all staff and whether training was required for non-accounting staff. The Head of Corporate Accounts stated that training had been strengthened for all staff, and business partners who worked directly with services were able to provide advice and guidance. In addition, further training for non-finance staff was under discussion including video training to ensure staff had the relevant knowledge when including the relevant evidence on invoices.

The Chief Operating Officer stated that there was an onus on the services ensuring that information was included in purchase orders and invoices at an early stage.

Debt Recovery – a Member commented that debt recovery was an area where Council performance could be improved. The Chief Operating Officer agreed it was an area of focus for the Council.

Decision:

a)     The Committee noted the Auditors Annual Report 2024/25 at Appendix 1.

b)     The Committee noted the Audit Findings Report (ISA 260) 2024/25 as per Appendix 2.

c)     The Committee approved the draft management letter of representation 2024/25 as per Appendix 3.

d)     The Committee approved the Statement of Accounts for 2024/25 at Appendix 4.