Agenda item

To consider the Audit Completion Report for Year Ended 31 March 2023 from the Council's appointed independent external auditor - EY (Ernst and Young).

Mark Hodgson from Ernst & Young, the Council’s Appointed Auditors presented the report to the committee.

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

·         Councillor Christy referred to the page 13 of the report which highlights the results and the implementation of the backstop date, which mentions that the proposed disclaimer of the Council’s 2023 accounts will impact both the audit procedures to be undertaken to gain assurance on the 2023/24 financial statements. He asked whether Mark Hodgson was able to provide some detail with regards to the significance and magnitude of that impact to be had on the audit procedures and the audit report for 2023/24? Mark Hodgson explained that the Financial Reporting Council have issued some guidance in an accessible document which has been provided to Mark Saunders, Chief Accountant, and Peter Catchpole, Section 151 Officer and within that document it sets out that there is a usual, at least, minimum 3-year period to unwind a disclaimed audit opinion before it can return to what he would deem to be an unqualified set of accounts in a normal set of circumstances. He added that because there have not been any audit procedures in 2022/23, there are no assurances over the Council’s closing balances and the reserve position as of 31 March 2023 and as a result of this there are no assurances for 23/24 with the opening balances and then similarly the audit opinion for that period would need to be disclaimed because it is deemed that the opening balances are a pervasive part of a set of financial statements, and you cannot opine on them without that opening balance assurance. Mark Hodgson explained that you can then build back an element of assurance by doing all of the in-year transactions in order to get assurance on the closing balance as of 31 March 2024, however, when the subsequent period is entered into, there is no assurance over the comparatives and the movements between the two sets. He added that as a result there is a qualified opinion on the subsequent 24/25 accounts, and it is hoped by 25/26 there can be procedures performed in order to build back assurances over each of the three years in order to reach a position as of 31 March 2026 where there is the potential to issue an unqualified opinion. Mark Hodgson made the point that it is a long and convoluted process in order to unwind and recover the local audit market which is how the Government has referred to the situation.

·         Councillor Booth stated that a result of this it would appear that it is going to mean additional assurance work which in turn will mean that additional fees are going to be accrued. Mark Hodgson stated that the audit fees will be determined by Public Sector Appointments and in order to build back assurance, there will be procedures which need to be performed in order to build it back and those procedures will not have been performed in the 2022/23 year and, therefore, there will be fee implications from the audit firm perspective, however, that does not fall within his jurisdiction.

·         Councillor Booth stated that he would like to know how the Council finds itself in this current position as it is his understanding that the issue is because Ernst & Young did not have the resources in place to undertake the review in previous years and he asked whether that is correct? Mark Hodgson explained that there a whole series of issues which have led to the backlog in local audits across the whole sector, which has been well documented in  reviews including the Redmond Review and when considering this Council specifically, the reasons have been set out on page 8 of the report which have led to the reasons for the disclaimer. He made the point that he accepts that there were points in time when the Council was ready to be audited, however, there were no resources available in order to undertake the audit but it is fair to say that it works vice versa across the time period that the audit would have started, and the reasons cited on page 8 form the basis for that audit disclaimed for the Council for this audit year.

·         Councillor Booth made the point that the report is disclaimed and, in his view, the report does not provide enough emphasis that Ernst & Young did not have enough resources available and is not clear enough. He added that he recalls a conversation that he had with Peter Catchpole concerning a late notice cancellation when Ernst & Young were due to be on site, but that visit did not take place. Councillor Booth stated that he would like to have seen in the report that it was more clearly attributable that the position the Council now finds itself in is not only due to the actions of the Council and he feels that it is disingenuous not for that to be clearly articulated. Mark Hodgson stated that he notes the comments made by Councillor Booth and he added that he has considered how the position is reported and the narrative which are on page 8 is a consistent basis where relevant for each Council given the context and the legislation which has been applied and is being followed.

·         Councillor Booth expressed the view that that whilst it may be the adopted consistent approach by Ernst & Young it appears to be a cut and paste approach into a report for Fenland District Council and he does feel that there could have been more context included as it is a public document. He added that the way it currently reads, it appears to proportion the blame on the Council and he would have liked to see it made clearer regarding the resourcing issues.

·         Councillor Christy asked Peter Catchpole to confirm what communications are in place to notify the public of the late filing of the disclaimed 2023 accounts and asked whether there has been any wording provided by MHCLG? Peter Catchpole stated that all of the documents are in the public domain and the associated problems with the audit backlogs are a well-known fact. He added that there are no specific communications planned and the level of public interest in the Council’s accounts when they go out for consultation is minimal. Peter Catchpole added that it has been decided that there is no specific action which needs to be taken as it is felt that there is enough information in the public domain, however, if members feel that there is the need to do something further then that could be done. He expressed the view that the Council has a good working relationship with Ernst & Young and continues working with them in partnership.

·         Councillor Booth stated that he agrees that the level of engagement is minimal because the information is not in plain English and not easy for people to understand. He added that one of the implications is around the backstop and the changes to regulations and, in his view, the unintended consequences is where the Council finds itself in the current position. Councillor Booth added that it has been stated that there is the plan to clear the backlog but, in his view, they are creating more work for external audits in the future, and he believes that information should be fed back. He made the point that the External Auditors are going to have to undertake additional catch-up work in order to give themselves more assurance in the future.

·         Councillor Tierney expressed the opinion that it is fair to say that the public are not interested in the Council’s accounts up until the point when they can see that something may be wrong and that is when the level of interest increases. He made the point that he thinks it would be a worthwhile exercise to speak to the Communications Team to ensure that the cause and effect are clear to ensure that people are not confused and think that something untoward is taking place.

Members agreed to note the contents of the report.

(Councillor Booth asked for it to be recorded that he did not agree with the contents of the report)