Agenda item

Hitesh Jolapara, Strategic Finance Director, introduced the report that recommended the Committee to note the auditor’s findings and recommendations, approve the management representation letter, approve the Statement of Accounts for 2015/16 including the Pension Fund, to note the Annual Governance Statement, and approve the Pension Fund Annual Report 2015/16. He noted the following key points from the Narrative Statement of the Statement of Accounts:

·         A General Fund revenue account under-spend of £4.5m

·         A General Fund balance of £19.0m.

·         A Housing Revenue Account (HRA) surplus of £5.3m for the year, increasing its working balance to £18.5m.

·         Earmarked reserves at 31 March 2016 of £112.9m.

Andrew Sayers, KPMG, noted that they were anticipating issuing an unqualified audit opinion on the Council’s financial statements and that the Annual Governance Statement complied with the guidance issued by CIPFA/SOLACE in June 2007.

Three audit adjustments were identified above the threshold of £600,000 which required reporting. The impact of these adjustments was to decrease the gross balance of Debtors and Creditors on the balance sheet by £2.2 million (less than 0.2% of net assets) and did not impact the balance on the general fund and HRA account as at 31 March 2016.

The following key audit risks were identified in the 2015/16 external audit plan issued in June 2016:

·         Management override of controls

·         Valuation of Property, Plant and Equipment

·         Managed Services implementation (affecting Cash, Debtors, Creditors, Journals and Payroll)

Andrew Sayers noted that the auditors had discussed these issues with officers throughout the year and they were satisfied that adequate controls had been put in place. Further work was required for the Pensions Fund on valuations, benefits and contributions but there was comfort on the overall figures. There had been some issues with membership data following the recent transfer of contracts from Capita to Surrey County Council but the auditors now had all of the information they needed and anticipated being able to hit the 30 September deadline. It was noted that if any non-significant changes were required, such as changes to disclosure notes, the Strategic Finance Director would authorise these and inform the Chair.

The Chair invited questions from the Committee.

Councillor Guy Vincent, with reference to page 142 of the agenda, noted that the auditor had concerns about significant numbers of queries and the accuracy of data related to pensions. He asked if that was primarily a managed services issue. Andrew Sayers responded that the ‘logic check’ the auditors carried out on contributions and benefits was heavily dependent on membership data. When the check was completed it highlighted some concerns around the timing of people coming in and out of the scheme. When looking into the issue in greater detail they didn’t find any errors in payments made and they believed it was purely a data issue, of which an element was due to managed services, but was also due to the move from Capita to Surrey County Council. Once Surrey County Council were more comfortable with the data (carried out data cleansing etc.) it was advised that internal audit should carry out a further check on the data to ensure the issues had been resolved.

Councillor Vincent, with reference to page 162 of the report, asked if the auditors had found any issues in relation to procurement and contract management. Andrew Sayers responded that they had looked at contract management and were aware of issues such as the SEN passenger transport contract and managed services that had caused major problems for the Council. The auditors were satisfied that those issues had been identified and were being improved. He advised that procurement and contract management were fit for purpose but could have been improved – problems with those areas were common issues in local government. Councillor Ben Coleman noted that the two contract mentioned above were let by Westminster City Council as part of the tri-borough, not Hammersmith and Fulham.

Councillor PJ Murphy, with reference to page 22 of the agenda, noted the significant underspends in the General Fund outturn table and asked what proportion of that was due to unfilled posts. Hitesh Jolapara said he could share the outturn report that showed the breakdown of those figures outside of the meeting.

Councillor Michael Adam, noted that the reported underspend of £4,478,000 was fairly significant at a time when Council budgets were being reduced – and this raised questions about why the money had not been allocated. Councillor Murphy asked what percent of the budget the underspend represented and whether that was consistent with previous underspends. Hitesh Jolapara responded that the underspend was a relatively small percentage of the overall budget – successive years of austerity had created a culture where managers were very careful with their budgets. Councillor Adam noted the Controlled Parking Accounts underspend of £2,170,000 (page 22 of the agenda) and asked for a breakdown of that figure.

Councillor Adam noted that there appeared to be quite a bit of cash flow variance and asked what had caused it. Chris Harris referred members to the list of short term investments on page 33 and the cash flow statement on page 34 – he said the variances were largely due to the complexities of how investments and cash were managed.

Councillor Adam noted the pensions deficit of £490,000,000, which was higher than the pensions fund account - were officers using a different discount rate to measure liabilities? Officers responded that a range of actuary assumptions could be used to measure the liabilities.

Councillor Vincent, referring to the pensions fund account on page 210 of the agenda, noted that there was a net decrease of £12,000,000 this year but management expenses had increased. He asked officers to look again at fee structures with a view towards rebalancing in favour of performance.

Councillor Vincent noted that there were vague mentions of Brexit in the main accounts and it had been reported that some final salary pension schemes would be facing difficulties – he asked if the Committee should anticipate problems going forward. George Bruce responded that the pensions fund was a long term vehicle (50-60 years) and financial markets were not always stable. 2014-15 was very good year whereas last year was relatively flat. Since the year-end the markets have responded exceptionally well. Private sector pensions schemes had faced difficulties due to their gilt-based discount rate but the Local Government Pension Scheme was different, facing only slight reductions in discount rates.

Councillor Loveday, with reference to the list of transfers to and from reserves on page 58 of the agenda, asked if the Council matched money leaving reserves with the purpose that it was originally earmarked for.

Hitesh Jolapara responded that the Council chooses to reallocate funds based on need and they did look at the earmarked purpose first. Reallocations went through the Council’s standard governance processes and there was a clear audit trail for all transactions. Councillor Loveday asked if he could see information on what the reserves were used for.

Councillor Murphy asked if the increase in earmarked reserves from £92,589,000 at 31 March 2014 to £112,852,000 at 31 March 2016 was a good thing. Hitesh Jolapara informed members that reserves were all earmarked for specific purposes and they also gave the Council the resources for invest-to-save initiatives in the future.

The Chair, on behalf of the Committee, thanked Hitesh Jolapara and Councillor Max Schmid for their hard work in achieving an unqualified audit opinion.

RESOLVED

1.    That the Committee noted the content of the auditor’s ‘Report to those Charged with Governance (ISA260)’ (appendix 2 of the report) stating that the accounts will receive an unqualified opinion, the Council has an adequate internal control environment and has made proper arrangements to secure economy, efficiency and effectiveness in the use of resources.

2.    That the Committee noted the auditor’s findings, recommendations and the Council’s response to those recommendations as set-out in the Report to those Charged with Governance (ISA260).

3.    That the Committee approved the management representation letter (as included at appendix 3 of the report).

4.    That the Committee approved the Statement of Accounts for 2015/16, including the Pension Fund (as included at appendix 1 of the report).

5.    That the Committee noted the Annual Governance Statement which is included in the Statement of Accounts on pages 106-114 of the report.

6.    That the Committee approved the Pension Fund Annual Report 2015/16 (as included at appendix 4 of the report).