Agenda item

Report of Ernst and Young LLP which provides an update on the status of the 2019/20 Audit Plan, considers the known and potential impacts of Covid-19 at this stage on the audit and provides an update on the PSAA scale fees for the audit.

Report of Ernst and Young LLP which provides an update on the status of the 2019/20 Audit Plan, considers the known and potential impacts of Covid-19 at this stage on the audit and provides an update on the PSAA scale fees for the audit.

The following points were raised and discussed:

•      Major impacts of Covid-19 spanned year end. There were two main impacts on the external audit –

1.)   In terms of risks that it creates within the financial statements of the Council at year end.

2.)   Practicality, employees are working from home and doing external audits remotely is not the usual way.

•      Audit started in May 2020. Compared to previous planning report there have been some changes. The materiality number changed after calculation from £2.4million to £2.6million. The other change was identification of new significant entries and other areas of focus which have resulted due to covid-19.

•      Valuation of land and building, even though we are concluding in August but have already started work given that we have changed the risks from inherent risks to significant risk as a result of covid-19. We have engaged our reassessment specialist and they are currently working on sample for certain properties, in terms of valuation.

•      Currently working on going concern. Need to revisit pensions but waiting for confirmation from pension scheme. We have not started in our phase one audit. Also we need to go through the remaining procedures which we will plan to cover in August 2020.

•      Audit deadlines have been extended by MHCLG to 30 November as opposed to 31 July 2020.

•      In regards to Covid-19, EY have increased the risk level on receivables to “higher” because the pandemic had a big impact in terms of businesses and residents being able to pay any monies due at the end of the year.

Question asked by Councillor D.Bell (Executive Member, Resources) – If you did have a going concern problem, does it amount to a need for a Section 114 declaration? Is that going to be one and the same thing effectively?

A.Brittan, EY answered saying it would impact the going concern assessment and auditor reporting. If we identified things during the course of the audit which would lead us to a modified opinion in relation to that it could trigger a section 114 declaration.

Question asked by Councillor D.Bell (Executive Member, Resources) – Going concern work on 31 March 2020. It must come to an end at some point? You can’t keep waiting to see what the long term impact will be?

A.Brittan, EY answered saying there is a presumption that all local government authorities will continue as a going concern because the service provision that they provide will be supported by the government. However, there is obviously uncertainty about the funding and where it will come from. The going concern concept applies for 12 months from the date of signing so they are asserting that the Council is a going concern for 12 months from the date of signing. Budget and allocations often work from April to March. This is a great significance within all audit firms and certainly EY, we are taking it seriously. All of our opinions are subject to internal consultation to ensure we are being robust in our going concern assessments.

Question from Councillor J.Boulton – Roughly how much notice at the current rate do you think Welwyn Hatfield Council would get before a Section 114 notice needs to be served? Does it happen in a space of a week? Does it suddenly go from a bad situation to not or is it a longer period?

The Corporate Director (Resources, Environment and Cultural Services) answered – A section 114 notice is not served by the auditor, it is served by the section 151 officer. In terms of notice, serving that notice declaring the fact that the Council would not be able to deliver a balanced budget, need to have robust financial management put in place. Budget monitoring is done monthly at the Council, reported to Cabinet on a quarterly basis. Hope that we would have a lot of notice in advance if we were in that situation. CIPFA has issued some guidance so discussions will need to take place with a number of organisations before we serve the notice. There are a number of procedures that need to be completed before the notice has to be served.

Question from Councillor J.Boulton – I know EY were the auditors on the German Wirecard company. We’re not going to have a £1.2billion deficit in budgets at the Council?

A.Brittan, EY answered that the audit has not been completed yet for Welwyn Hatfield. The specifics of the Wirecard company is still on going. In the UK, in terms of teams that we have put together to work on our public sector audits have the training, knowledge and background to understand where the risks are and therefore be able to address them with the appropriate procedures.

Question asked by Councillor D.Bell (Executive Member, Resources) – Presumably the work that you still got to do on receivables, is the one area that might affect the Council’s closing general fund balance?

A.Brittan, EY answered that the longer the period from the balance sheet date, the more uncertainty you have to whether it is recoverable.

Question asked by G.Michaelides – How much is it going to cost us with all the additional work?

A.Brittan, EY answered that in the audit plan there was a section on what is happening in the audit environment, audit profession and in the local government sector, local audit regime as a whole and reflect on the fact that in the last few years things have change dramatically in terms of requirements of the profession and risk profile within the sector. The Council is currently opted into the PSAA regime and over a number of months there have been discussions on how we ensure sustainability within the audit market for local government. One of the observation by PSAA was that they do not have enough detail on the cost of individual audits in order to be able to recommend what changes needed to be made for 2019/20. Since sharing that information in the audit, we have gone through the process of calculating costs with change, risk profile and regulatory environment. The amount of fees have not been agreed yet.

RESOLVED:

Members noted the updates.