Agenda item

This report presents an update to the plan of Medway Council’s External auditors, Grant Thornton, for the audit of the Council’s Statement of Accounts for the financial year 2025/26.

Discussion:

The Senor Audit Manager, Grant Thornton introduced the report which provided an update on the audit plan for 2025/26 including the risk assessment associated with the Council’s financial statements, group accounts and a value for money assessment.

It was planned to complete the audit in an accelerated timeframe, with an opinion provided by 30 November 2026. This would be the statutory deadline to complete audits from 2027. To meet the deadline the majority of testing must be completed by mid-September and there were interim milestones and targets to support progress towards this target.

The plan set out the risks and the areas the external auditors intended to focus on. The Audit would consider the management override procedures which was a nationally recognised fraud risk, journal entry testing and account estimating including the spending and revenue position which was an area of risk for the Council.

The Audit would in addition consider IFRS16, property valuations of leases, which was a new risk introduced last year, although work was not able to be fully completed in this area in 2024/25. A further risk to the Council related to consolidated group accounts due to their complexity and this was an area of focus for the auditors. Grant Thornton had met with auditors of the subsidiary companies and would rely on the work undertaken by the auditors to inform its work. A scope and timeframe for the required work had been agreed.

In relation to the Value For Money assessment the audit will focus on previous key recommendations, the financial improvement plan and the resilience of the finance team.

The following issues were discussed:

Disclaimed Opinion – in response to a question as to how common was the Council’s position of a disclaimed opinion, the Chief Operating Officer stated that around half of the authorities in the Kent region had one or more disclaimed audit opinions and it was common nationally. The Senior Audit Manager Grant Thornton added that 216 of 459 authorities were currently in receipt of a disclaimed audit opinion.

Finance Service – further information was requested regarding the outcome of the rightsizing exercise, the Chief Operating Officer stated that the Council had invested around £1m in the back office budget for finance including six additional posts in the accounting function, however, the full benefit had not yet been felt due to some long term sickness and HR issues. In terms of leadership capacity, two financial consultants had been recruited to support the additional work required towards Local Government Reform (LGR) and review the overspend on Adult Social Care. This would enable senior management to provide the necessary leadership for the day-to-day work.

Information was requested on the outcome of the finance workshop, The Chief Operating Officer stated that the workshop had been held and a review of functions undertaken, there was a 30 point action plan and the finance forum for senior members of the team had been reinstated.

Audit Plan – a Member commented that the plan to complete the audit by 30 November 202was aspirational and asked what milestones and targets were in place to support progress. The Chief Operating Officer stated that he was confident it would be achieved.

The Senior Audit Manager, Grant Thornton, added that the priority was to undertake a full, normal audit this year focused on in-year transactions and the closing balance to promote a stable position for future years enabling a move away from the Council receiving a disclaimed opinion. There were week by week milestones to measure progress, in addition Grant Thornton had internal controls including a project plan and daily monitoring of progress to ensure the audit remained on track.

The Council had worked in partnership with Grant Thornton, working papers had been shared and information requested at an early stage where appropriate to ensure information could be provided. Regular progress meetings were held twice a week and a weekly update provided to the Chief Operating Officer including points of escalation.

In response to a question whether the auditors had adequate resources to complete the audit in the required timeframe, the Senior Audit Manager Grant Thornton stated that she was confident the team had adequate resources to complete the audit.

The Head of Corporate Accounts stated that the finance team had improved practice compared to last year’s audit. Finance Business Partners were working with services to improve the quality of information available to support transactions and quality checks were undertaken prior to the information being provided to the auditors. The audit was at an early stage of sampling however, the results so far had been positive.

Materiality – a Member commented that there had been a significant increase in materiality and trivial balances, he asked whether there had been a change in the risk profile for Medway. The Senior Audit Manager, Grant Thornton, explained the threshold level for a local authority to be categorized as a major local audit had risen from income of £500m to £875m, so Medway was now in a different category of audit and as a result this affected te assessment of materiality. There had been no factors specific to the Council which had changed its profile, however, there may be a reduction in the level of testing required.

Decision:

The Committee noted the updated Audit Plan for 2025/26 including the core fees and those proposed for other audit services.