The Council’s External
Auditor Ernst & Young attended the Committee and presented the
Audit Plan for the 2018/19 financial year.
Andrew Brittain, Associate Partner: Ernst & Young
highlighted the main audit risks and areas of focus of the Audit
Plan 2018/19 for Members and explained:
- The Audit Plan was
for the year ended 2018/19.
- Given the significant
level of capital expenditure over the last few years the Auditors
would be reviewing that the Council has applied capitalisation
correctly.
- On the third risk,
the Pension Liability net liability evaluation, the 2017/18 audit
had had some discussions about pension value assets. This was caused by the way the assets and
liabilities were valued as they were done at year end. The initial valuations were given by actuaries,
but it wasn’t until the year end when those asset values
could be assessed as appropriate, but at that point they had
moved.
- The pensions fund was
valued at about £250 billion.
- In relation to the
overall balance sheet, the impact of BREXIT on the macro
environment and the impact on the valuation of the pensions scheme
was a substantial risk to the balance sheet.
- The value of land and
buildings was an inherent risk as per previous years. The balance was judgemental and was estimated by
including a number of elements where small changes in assumptions
could drive a change in the balance in regard to the macro
environment.
- The Non Domestic
Rates (NDR) Appeals Provision could only be accurate right at
complete year end. There were changes
in the new ratings listing in 2018.
- PFI
Estimates. This related to the joint
PFI across Reading and Bracknell and Wokingham. The assumptions underpinning the PFI would be
reviewed. Small changes could drive
significant changes in the accounts.
- Two new accounting
standards had come into force in 2018 that were outside of the
Council’s control. These were
IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from
Contracts). Both were likely to have an impact but the impact was
as yet unknown.
- IFRS 19 (Leases)
which was due to apply from April 2019 had now been pushed back to
April 2020.
In response to Member
questions, Andrew Brittain, Associate
Partner: Ernst & Young explained:
- The key to the
colours used in the report were:
- Yellow. There had been no change to the risk.
- Orange. The risk had been seen before but had
changed.
- Red. Indicated a new risk.
- Ernst & Young
were not the auditors of the pension scheme, that was audited by
KPMG. In terms of the value of the assets assessed by the actuary,
last year the Bracknell share of the pension had moved by
£200,000 out of a very big number. The economic environment was no more stable this
year and things remained uncertain.
- NDRP business rates
had been considered.
- There was a
requirement to disclose the impact of any upcoming standards which
was why IFRS 16, which would have applied in April 2019 (had it not
been deferred) had been mentioned. The
difference it would have made had been accounted for.
- Materiality had been
set at £5.5million for 18/19 which represented 2% of the
prior year’s gross expenditure on provision of
services. This number would be updated
when 2019 was complete.
- Performance
materiality had been set at £4.1million and was set at 75% of
planning materiality.
- Uncorrected
misstatements that exceeded £278K would be brought to the
attention of the G&A Committee.
Anything lower than that figure would be considered
trivial.
Justine Thorpe, Manager: Ernst
& Young highlighted the key factors associated with and purpose
of the Value for Money conclusion to Members.
- The Council were
borrowing more, and had less reserves.
- There was a
comprehensive medium term plan in place.
- The value for money
conclusion looked at fees, resources and expenditure to make sure
it all stacked up and to identify the correct funding
gap.
- The purchase of
investment properties by the Council generated more income to
compensate for reduced Government funding. The Value for Money assessment looked at the
arrangements for this and made sure there had been proper due
diligence.
In response to questions from
Members it was clarified that:
- The External Auditors
were aware that Bracknell Forest Council had completed their
commercial property buying strategy and were purchasing no more
commercial properties.
- The value for money
conclusion was not a cash decision. It
was an assessment of the process by which the activity/asset was
delivered. If a council had built a new
town centre, the value for money conclusion was not about whether
the new town centre was good or not, but rather were the decisions
to get there appropriately made. Were
informed decisions taken, were resources deployed in a sustainable
manner and how did the Council work with partners and third
parties? It was about how decisions
were reached, not about whether those decisions were right or
not. It was about the
process. What advice was received, what
expertise was required, did that expertise need to be acquired,
were there appropriate consultations, was there undue financial
risk, was there transparency to the Members.
- A number of councils
had bought local shopping centres because of their social
value. The value for money conclusion
was not judging if an investment had been good or bad, it looked at
how the investment risk was assessed and how it was
managed. The value of assets rise and
fall, the value for money conclusion looked at whether this was
taken into account at the time the decision was made.
- This was the first
year the commercialisation and the purchase of investment
properties under the Council’s commercial property investment
strategy (CPIS) had been picked up.
- Where the
public’s perceptions of an issue were raised, that must be
looked at by auditors.
- Ernst & Young are
independent auditors
- This was the first
year of the new contract which Bracknell Forest had opted into with
Public Sector Audit Appointments Ltd (PSAA). PSAA set the fees which had been
reduced. The planned fee for 2018/19
was set at £80,639.
- Previously the fees
covered the Code of Audit Practice work and the Housing Benefit
work. The new fees only covered Code of
Audit Practice work.
- The quote for Housing
Benefit work was provided to Members as an exempt appendix for
consideration under the agenda item External Auditor
Appointment.
- The final fee for
2017/18 had been £124,826
- The Planned fee for
2018/19 was looking like £99,410.
- The fee reduction was
approximately £25,000.
- The Planned fee for
2018/19 might go up if something unexpected occurred.
- The fee reduction had
not curtailed the amount of audit Bracknell Forest
required.
- PSAA had reduced the
fee based on their assessment on combined tendering contract
renegotiations.
The Chairman gave thanks to
Andrew Brittain, Associate Partner:
Ernst & Young and Justine Thorpe, Manager: Ernst & Young
for attending the Committee and providing the External Audit
Planning Report 2018/19.
RESOLVED: that the Audit Plan for the
2018/19 financial year from the Council’s External Auditor be
noted.