Agenda item

To receive the Wokingham Borough Council Audit planning report year ended 31 March 2022.

The Committee received the Wokingham Borough Council Audit Planning Report Year ended 31 March 2022.

During the discussion of this item, the following points were made:

·       The Plan could change on receipt of a full updated set of draft financial statements for 2021/22, and also on completion of the work for 2020/21.

·       Members were advised that 2021/22 was the last year that Helen Thompson could be the auditor for Wokingham Borough Council under the PSAA rotation requirement.  This left a year between EY completing the audits and the audits being handed over to KPMG. To manage this EY had put two partners on the audit.  Helen Thompson would largely run 2021/22 but Janet Dawson would be the signing partner, who would then sign 2022/23, working with Hannah Lill on that audit.

·       Hannah Lill highlighted the high level overview of the 2021/2022 audit strategy.

·       Misstatements due to fraud or error (management override) was identified on all audits and there was no change in this from the prior year.

·       Risk of fraud in revenue and expenditure recognition, through inappropriate capitalisation of revenue expenditure continued to be identified as a significant risk and a fraud risk.  EY believed that the risk of manipulation was most likely to manifest in the incorrect capitalisation of revenue expenditure through either inappropriate additions to Property, Plant and Equipment (PPE) and Investment Property (IP) or incorrect classification of expenditure as Revenue Expenditure Funded from Capital Under Statute (REFCUS), as there was an incentive to reduce expenditure which is funded from Council Tax.

·       Valuation of Land & Buildings in PPE and IP continued to be a significant risk.

·       A number of areas had been identified as areas of audit focus, including the Pension Liability Valuation and the Going Concern Disclosure, Accounting for Public Finance Initiative (PFI), Group Accounting, and Cash and cash equivalents.

·       Due to recent guidance, there was a heightened focus on Going Concern Disclosure.

·       With regards to Group Accounting, there have been changes in the Group structure during the 2021/22 financial year, and these need to be accounted for appropriately, and the consolidation of the financial statements had been undertaken correctly.

·       With regards to Cash and Cash equivalents, the Council had a  number of imprest bank accounts within its portfolio that were not reconciled on a regular basis in prior years, resulting in unexplained differences between the Council’s accounting records and statements from the relevant financial institutions.  Whilst these differences had not been material, there was a need to perform reconciliations on these accounts to ensure appropriate record keeping and prevent any undetected irregularities.

·       Hannah Lill outlined the approach to the auditing of the Groups.

·       Members were advised that the level of tolerable error was reducing from 75% to 50%, due to the number of issues and misstatements identified with the 2020/21 audit.  Sample sizes were likely to be bigger and further testing would be required.

·       Hannah Lill outlined the audit timetable.

·       Mike Drake asked whether Officers would present the going concern assessments and cash flows to the Committee.  The Chief Accountant stated that there was a statement around going concern in the Accounting Policy.  A lot of information was provided to EY as part of their going concern review, including cash flow for 12 months in the future from the date it was excepted that the accounts would be signed.  Helen Thompson added that it was less common for public sector Audit Committees to see a going concern paper.  The Chair agreed to discuss providing a going concerns paper to the Committee, with Officers.

·       Mike Drake went on to ask whether the imprest bank accounts were now regularly reconciled.  It was confirmed that they were up-to-date and reviewed regularly.  Mike Drake also sought comment on the reducing level of tolerable error. The Assistant Director Finance responded that in terms of the adjustments impacting the level of checking, Officers would accept that the number of differences had been large, the material nature of the value and outcome of those, had not been significant.  He emphasised that there had been investment in the internal Finance Team, which was now in place.

·       The Chair queried why the risk around going concern remained unchanged given the poor financial climate nationally.  Helen Thompson responded that largely there was a presumption that local authorities remained a going concern. Practice Note 10 issued by the Financial Reporting governed the consideration of going concern for all public sector bodies stated that if services were to continue then the entity was a going concern.

·       In response to a question from Councillor Maher regarding Value for Money, Hannah Lill stated that under the previous code EY had given had an opinion regarding Value for Money, but under the current code of audit practice EY reported by exception.

·       Councillor Gee asked about the governance arrangements with regards to the subsidiaries.  She expressed concern regarding the possible impact of national changes to Adult Social Care and turbulence in the housing market, on the Council subsidiaries.  Councillor Gee noted that the subsidiaries had different auditors and questioned whether they should have the same auditor as the Council.  The Deputy Chief Executive stated that the companies were in the Internal Audit Plan.  With regards to the appointment of auditors of the component entities there had been a value for money consideration, but he would welcome consistency.  However, it was down to the companies to appoint their own auditors.

RESOLVED:  That the Wokingham Borough Council Audit Planning Report year ended 31 March 2022 be noted.