Agenda item

To review the provisional external audit plan.

Mark Hodgson for Ernst&Young (EY) presented the Provisional Audit Plan for 2023/24 report to members.

Members asked questions, made comments and received responses as follows:

·         Councillor Christy asked for further detail with regards to the planning materiality figure of 2% and he asked how that figure is derived or why that particular number is chosen. Mark Hodgson explained that there is a global audit methodology which EY use and they have a range from which they can select and within the public sector the range goes from 0.5% through to 2%. He added that 2% is at the higher end where consideration is given as to what stakeholder’s requirements are in terms of assurance at that level that would gain sufficient assurance. Mark Hodgson stated that when considering the £1.4m which is associated to the Council and when referring to stakeholders that means Council taxpayers, Central Government and any other body who has an interest in the Council’s set of accounts. He explained that gross expenditure is deemed to be on the basis upon which is more appropriate for the public sector as the Council is a service providing organisation. Mark Hodgson explained that salaries are included as they are a major cost and, therefore, it is an expenditure basis as opposed to an asset basis and when considering the two together that is how the figure of 2% gross expenditure is reached.

·         Councillor Booth stated that when reviewing the risks that have been identified, members have raised concerns previously with regards to Fenland Future Ltd (FFL) which has been set up and he stated that he is aware that there have been investments undertaken in order to provide returns to the Council, questioning why that has not been listed as a risk. He stated that as it is a new area and, in his view, it would fall under the umbrella of the investment activity, and he asked Mark Hodgson for his view. Councillor Booth added that the committee have mentioned previously that they would like to have assurances that FFL is operating as it should. Mark Hodgson explained that with regards to the operation of FFL, in his view, that would fall under the value for money arrangements which was covered in the work undertaken for 21/22 and as a result EY were comfortable with the overall arrangements. He stated that this is a provisional audit plan due to the fact that information can be submitted to EY at any point in time and at the point when discussions took place there were significant transactions expected prior to the year end which would necessitate the group accounts needing to be prepared and when you consolidate FFL into the Council’s discussions earlier he has now been led to believe that there is the possibility that group accounts may be required which will be dependent on any transactions between now and 31 March 2024. Mark Hodgson added that the risk profile can be revisited before the audit once a draft set of accounts are reviewed and if group accounts are required and consolidation is part of that then it would automatically become an audit risk area and, therefore, it would be designated as either significant inherent dependent on quantum but he anticipates that further discussions will take place and it may become an audit risk in an updated plan before the audit takes place. Mark Hodgson stated that the two combined will provide members assurance in November.

·         Councillor Booth stated that it is his understanding that there have been 2 large investments through FFL over the last couple of years. Mark Saunders stated that FFL are working on two large developments of Council owned land which has been transferred to FFL and completion is imminent but not before the end of March. He added that as it stands the land is still owned by the Council and not by FFL and the only element that has gone through the accounts of FFL to date is the cost of obtaining outline planning permission and other associated preliminary work. He added that looking forwards when transactions start to go through the account then a separate set of group accounts will be required and then can be incorporated into the Councils’ financial statements.

·         Councillor Booth referred to the pension liability valuation and added that a lot of work is invested into it and it is something that continually changes with stock market movements. He made the point that whilst it is a green risk at the current time, could there be any potential for the amount of work in that area to be reduced given the fact that there is governance and controls in place. Mark Hodgson stated that at the current time it is a valuation at a point in time which is driven by a significant amount of work at the pension fund which is linked to a number of assumptions that they actually make which are linked to thresholds for returns and interest and inflation rates. He added that it is very complicated and there cannot be a reduction in audit work because there is still the requirement to get sufficient assurance over the balance at the 31 March. Mark Hodgson explained that CIPFA are consulting on potential changes to the financial framework and one element of potential change is pensions with the potential going from full international reporting standards down to FRS102, which is more limited reporting standards which in practical terms means that there is a significant reduction of the number of pages within a set of accounts. Mark Hodgson explained that as the international standards are currently drafted the requirements still require full assurance.

·         Councillor Christy referred to the report which details the associated fees and he made the point that they appear to be quite substantial and he asked for the differences between the years 22/23 and 23/24 to be explained. Mark Hodgson stated that the fees shown for 23/24 are for the first year of the new contract that public sector audit appointments have let for the new round and the contract reflects the cost of performing an International Standards on Auditing (ISA) with all the regulatory requirements that are now incumbent of an audit. Mark Hodgson explained that the figure on the right is the old contract and when it was introduced there were fewer regulatory requirements but that was the baseline fee and ever since that fee was introduced there has been a significant additional fee levied in each of the years which almost closes the gap between the two but that is not shown in the document due to the fact that the scale fee is what is actually published formally by Public Sector Audit Appointments. Mark Hodgson explained that if the scale fee is added to what has been charged to complete an audit in 2021/22 the figure will be that which is shown in the report in the left-hand column.

Members noted the 2023/24 Provisional Audit Plan.