Agenda item

This report sets out Grant Thornton’s (GT) plan to rebuild audit assurance at Medway Council following the disclaimer of opinion issued under the statutory backstop for the years ended 31 March 2025, 31 March 2024, 31 March 2023 and 31 March 2022. This plan has been agreed with management and will be communicated to the Ministry of Housing, Communities and Local Government (MHCLG) in July 2026.

Discussion:

The Senior Audit Manager, Grant Thorton introduced the report, she explained that the Government had requested all audit firms agree a plan to get back to assurance which would be shared with local authorities via their Audit Committee. The high-level plan sets out the current position, challenges and a high-level plan to regain assurance. Challenges for Medway related to capacity and complexity of group accounts. It was important that the audit this year be completed on time to aid the regaining of assurance by 2027/28.

The following issues were discussed:

Capacity – a Member commented that he was concerned that Medway was considered to be in Category D (Not capable of an ISA-compliant approach by 2027/28 due to practical constraint) he asked whether the audit could be completed in time given the additional workload created by Exceptional Financial Support and LGR. The Chief Operating Officer stated that the Council had increased resources in the finance department and invested in two senior consultant roles to undertake work related to LGR and the Council’s improvement journey. In his view this would improve the leadership capacity of the team and support progress on delivering the FIT Plan.

The Senior Audit Manager, Grant Thorton stated that the Government was concerned at the current situation and was exploring options to achieve a sector wide solution. Medway was not the only authority to have disclaimed opinions for a number of years. Currently twenty-four authorities audited by Grant Thornton were considered as Category D.

She added that it was acknowledged that LGR would be an issue going forward, and a disclaimed opinion may impact on successor authorities. The Government was moving forward with the creation of a local audit office to improve audit capacity.

The Chief Operating Officer added that LGR had focussed minds in the sector, whilst there was no penalty associated with disclaimed opinions, external stakeholders had no independent assurance about the financial position of the Council.

Financial position - it was asked whether the audit position had affected the Council’s ability to procure loans. The Head of Corporate Accounts stated there were two ways of accessing loans, through the Public Works Loan Board (PWLB )or borrowing form other authorities. The PWLB rate was set nationally and not affected by the audit opinion. Other local authorities may consider the Council’s audit position as part of their perception of risk when deciding whether to loan monies to the Council. The Chief Operating Officer added there had not been any practical effect in the Council’s ability to access borrowing.

Common themes – it was asked whether there were any common themes in disclaimed audits, the Senior Auditor Grant Thornton stated that the current situation was unprecedented, building back assurance had begun and issues were focussed on transactions, balances and the closing position.

There was a distinction to be made between the general fund and the HRA. Auditors needed to gain assurance that spend which had been made a number of years ago correct, however, that was exceptionally challenging. There was ongoing discussion how this would realistically be achieved.

Decision:

The Committee noted the Regaining Assurance Strategy.