Agenda item

Report of the Director – Finance and Corporate Services

Mr Surridge from Mazars, the Council’s External Auditors presented the Council’s External Audit Annual Plan, which summarised the approach to External Audit activity with regard to the final accounts process and value for money arrangements for the financial year 2023/24.

Mr Surridge referred to Mazar’s responsibilities as the External Auditor, with five key areas as detailed on page 80 of the report, which included:

·                  Audit opinion

·                  Internal Control

·                  Fraud

·                  Wider reporting and electors’ rights

·                  Value for money

Ms Norman from Mazars referred to the operational side of the Audit Plan and confirmed that the planning, risk assessment and interim phases had been completed, with the fieldwork stage due at the end of June, and the audit opinion hopefully given in September. The Group noted the three main risks, which were common for all district councils:

·                  Management override of controls

·                  Devaluation of the LGPS defined benefit pension

·                  Valuation of land and buildings

Mr Surridge referred to page 94 of the report and the value for money arrangements, and advised that as External Auditors, Mazar’s responsibility was to follow the Code of Audit Practice, which defined what was required to ensure financial sustainability, and it would involve checking the Council’s financial plans and processes and its governance arrangements. It would also look at improving economy efficiencies and effectiveness, which involved looking at how performance management worked and how the Council worked with key partners. Mr Surridge confirmed that this was a live process, and currently no areas had been identified where a ‘deep dive’ would be required. Reference was made to the substantial increase in audit fees since last year, and the Group was advised that the fees were set by an independent body and Mr Surridge concluded by confirming that Mazars was independently appointed to undertake the audit.  

Councillor Birch asked which body set the fee, and Mr Surridge advised that the Council had opted into a framework appointment by Public Sector Audit Appointments (PSAA), which ran a contracting round, and bid and allocated pieces of work to different firms. As part of that process, PSAA determined a scale fee, to deliver the entire contract, which resulted in a level of subsidy. The Director – Finance and Corporate Services advised that the public sector audit market was currently in a challenging state, and was a high risk market, and there were issues recruiting auditors, and all that led to a degree of pressure. PSAA had undertaken a procurement exercise, and the increase for Rushcliffe was very similar to that for other councils, and the Group was advised that if the Council spent time and money undertaking its own procurement exercise, it would not result in cheaper fees. 

Councillor Regan referred to Community Infrastructure Levy (CIL) and Section 106 monies and asked at what point did the Council evaluate the erosion through inflation, given that those funds could not be accessed until phases were completed, and he asked if anyone reviewed the effectiveness of the CIL and Section 106 funds at the end of the process. Mr Surridge advised that Section 106 receipts formed part of the financial statements and Mazars would look to ensure that the figures were correct, rather than what they would be used for. If, as part of the audit, significant concerns were raised, that could be indicative of a control failure, and that could be raised at that point; however, the question was more about the governance and controls in place, which was not Mazar’s responsibility.

Councillor Regan clarified that his question related to value for money, and how that value was eroded over time through inflation and he thought that at some point some revaluation of those funds had to be given. Mr Surridge stated that value for money was a subjective determination, so the auditor’s opinion had to be objective, and if it felt that Section 106 monies were substantial sums at a significant risk of causing a significant financial loss to the Council, due to a complete lack of control, it might be something that would be looked at. However, the question related more to the scrutiny of how effectively were the funds being used and deployed, and if it was an area of concern there were better routes to monitor that through KPIs and the Risk Register.

Councillor Butler referred to the significant risks list and the Local Government Pensions Scheme and asked if it was the Council or the auditors who would be responsible for addressing this identified risk, and as the scheme was part of the Nottinghamshire County Council Pension Scheme, what influence did Rushcliffe Borough Council have. Ms Norman confirmed that the planned response would be by the auditor and the Director – Finance and Corporate Services advised that there was an Annual Pension Fund meeting, which Council representatives attended and that the pension figures were included when the budget was set.

The Vice Chair referred to management override and stated that it was not always a negative thing and sometimes under exceptional circumstances, it could be a good thing to override internal controls, and she asked when the auditors assessed the risk of management override, did it consider a very rigid system that did not take into account the context or did it identify times when it could be beneficial. Ms Norman advised that this was a standard name for the risk and it was an indication of extra testing and Mr Surridge stated that the auditor’s objective was to check on the accuracy of the figures and to ensure that nothing fraudulent was taking place. The Director – Finance and Corporate Services stated that from a governance perspective, there might be occasions when an override was necessary, and that must be reported to ensure transparency and accountability.

It was RESOLVED that the External Audit Annual Plan be accepted.