Agenda item

This report provides this Committee an update on the progress in Grant Thornton delivering their responsibilities as the Council’s external auditors.

Discussion:

The Head of Corporate Accounts introduced the report which had been provided by external auditors and updated the Committee on the progress of the 2025-26 audit.

The Director, Grant Thornton stated that there had been progress made in some areas and work in relation to capital receipts had been completed this week. However, challenges remained, a review of progress had been undertaken, and a number of technical questions raised with the finance team.  The report highlighted areas those area where less progress had been made and the reasons for this. In particular, there was a lack of specialist knowledge in the team regarding Group Accounts and staffing issues had slowed progress in some areas.

Further meetings would be held between auditors and the Council to consider what worked remained outstanding, and what could be done prior to the January deadline for the audit.

The following issues were discussed:

Progress –  a Member raised concern that there had not been significant progress of the audit compared to last year and he commented there had been disclaimer opinions for the last four years. He asked whether the Council continued to have difficulty in obtaining relevant transaction information. The Director, Grant Thornton stated that progress had been made in the Corporate Finance Team, and that many of the challenges were outside of the direct control of the finance department.

The Head of Corporate Accounts stated that the audit had run more smoothly than last year, so progress had been made. However, the Finance Team were reliant on the information provided by services across the Council which was not always of the necessary quality. Finance continued to work with auditors to improve the information available.

The Chief Operating Officer added the Committee had previously discussed the work that was undertaken to improve the quality of information including greater responsibilities for Finance Business Partners to scrutinise transactions. The work had been undertaken part way through last year, so issues remained. The team had not reviewed whether information had improved for transactions since January, and this was something the team could consider to ensure practice had improved.

A Member asked if the Finance Team need greater resources, the Director Grant Thornton stated that some funding was available to the Council to complete some of this work. However, funding had not had the effect initially hoped for so there had been a pause in the additional funding.

The Chief Operating Officer stated that he had put in place greater resources to support the team, the Council had recruited a Chief Finance Officer and a Head of Financial Planning and Business Partnering. The team had also benefited from temporary additional senior resources. Whilst the team had the necessary skills, it was a lean team with a number of specialists, so sickness or staff absence was a significant issue. There was a development programme in place to create further resilience. Discussions had taken place regarding the structure of the team. There were concerns regarding the financial sustainability of the current position, both corporate and management accounting needed additional resources. When the Council originally applied for Exceptional Financial Support (EFS), the advice from central government was to keep any borrowing as small as possible, however that limited opportunities to invest in restructuring services or for contingencies. It may be that greater levels of EFS would enable the Council to restructure the organisation and fund transformation activity to put the Council on a more sustainable footing.

A Member commented that there was uncertainty at the current time with the pause in LGR, the Chief Operating Officer acknowledged this and stated that the FIT plan proposed a fundamental review of waste services, however, this had been not been undertaken due to upcoming LGR. Now LGR had been paused, his view was the Council needed to focus on a robust medium term financial plan for Medway.

Medway Development Company (MDC) – a Member asked for the auditors’ views on the financial resilience of MDC and its business plan. The Director, Grant Thornton stated that the value for money work was ongoing, but there were no current areas of concern which required reporting to the Committee in relation to MDC.

The Head of Corporate Accounts added that the 2024-25 accounts had been completed to the deadline, but this had not allowed for an effective quality review, which caused delay. The team was working this year towards an earlier deadline to ensure a full quality review could be undertaken prior to the deadline, however, a key member of staff had been lost, and as a lean team with specialist knowledge, this had a detrimental effect on the ability to complete the accounts on time.

Regaining Assurance – a Member asked how the Council would regain assurance. The Director, Grant Thornton stated that Medway would receive a disclaimer opinion for the next two years. To regain full assurance obtaining assurance of opening and closing balances was key, however, many authorities, including Medway, would have seven or eight years of disclaimer opinions making it impossible to fully recover the position, so a national solution was required to reset the position.

The Chief Operating Officer added that in his view the Council needed to reach a stage where auditors were satisfied with the transactions in year to provide them with assurance that balances could be deemed correct. Then the sector as a whole could consider solutions to regaining assurance.

Decision:

The Committee noted the content of the Audit Progress Report and Sector Updates at appendix 1 to the report.