Agenda item

External Audit Planning Report 2018/19

To note the Audit Plan for the 2018/19 financial year from the Council’s External Auditor.

Minutes:

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.

Supporting documents:

 

Contact Information

Democratic services

Email: committee@bracknell-forest.gov.uk