Agenda item

Reporting Person – Steve Bladen (BDO)

The Chairman welcomed Steve Bladen, the Council’s lead Auditor and Ryan Ferguson, Head of Local Audit, from BDO to the meeting.  The Committee received an update on the 2019/20 External Audit from BDO, noting that Commissioners had been appointed by the Government and a Section 114 Notice issued since the last meeting.  Steve advised that the report outlined the financial challenges for the Council and its financial statements due to prior period adjustments to the Accounts being required.  The report set out the areas of audit activity such as the Council’s subsidiaries, Minimum Revenue Provision (MRP) and loans to third parties.  Steve stated that the Audit was close to completion, with BDO awaiting the Council’s intention on its approach to carrying out the prior period adjustments.

The Chairman stated that it was clear that the Council not having received the benefit of an Audit Opinion since the 2018/19 accounts was having an adverse impact on the Council, and there had been little progress in recent months which could have contributed to a clearer picture of the financial position at an earlier stage.  She stated that the Council would need to take a view of the accounting amendments required and would need assurance from BDO that the Audit would be concluded in a timely manner.

Brendan Arnold, Interim Director of Finance / Section 151 Officer, stated that from an auditing perspective when reviewing accounts there was more than one source of assurance from which an Auditing Opinion could be made.  Due to the Council’s previous approach to MRP, the Accounts would have included a negative balance likely prior to 2018/19.  On the basis that it was clear that the Accounts were at high risk of a qualified Opinion, the prior period adjustments should not delay the Opinion and conclusion of the Audit.  Steve stated that BDO were awaiting confirmation of the Council’s intentions and that the Accounts would not represent a true and fair view until that time.  It was noted that the adjustments could involve the 2018/19 Accounts being restated.

Following questions by Brendan over whether there was a risk of BDO auditing its own work as the last Opinion was stated for 2018/19 and whether BDO would note any errors in its work by not notifying the Council of the General Fund balance earlier, Ryan stated that restating financial accounts was not uncommon with no actual risk of BDO auditing its own work.  Ryan added that Steve had not been involved in the 2018/19 Audit and it was the responsibility of the Council to provide financial statements.

Members felt that with the benefit of hindsight if the delays in the Audit had not occurred the current financial issues could have been identified earlier, although it was noted that BDO had been unable to secure the working papers of the past subsidiary auditor, Hamlyns.  The possibility of a complete re-Audit was not an affordable option for the Council.  It was stated that a complaint raised by a resident regarding MRP had been accepted by BDO as an objection to the Accounts.  The issue of MRP had been acknowledged by the Council in its seeking of a legal Opinion, however the Committee did not accept that BDO had stated previously that it had disagreed with the past policy on MRP.  The Audit Letter from 2018/19 had only recommended that the Council review its MRP policy against the guidance. 

Following a question by the Chairman, Brendan advised that work was continuing to ensure the loan documentation history to the Council’s subsidiaries was complete and assess their recoverability, which should be completed by August.  Consideration was being given as to the prior period adjustments, however he stated that he felt a low level of confidence in BDO completing the Audit soon afterwards based on past levels of activity.  He urged BDO to consider the views expressed at the meeting and how it could provide the contracted Audit service the Council desperately needed.

Members reiterated their concerns over the delays of the Audit, the report before the Committee and effect on local residents.  The Chairman noted the report before the Committee along with BDO’s request for the Council to look at the past accounts adjustments, and that the work would result in the Council having a deficit and a qualified Opinion.

RESOLVED

That the update be noted.