Agenda item

This report, for information, presents the external audit plan and risk assessment for the audit of the financial year 2023/24. In addition, it provides an update on the Statement of Accounts for 2022/23 and 2023/24.

Sukvinder Kalsi (Executive Director of Finance and Corporate Services) briefed members that this report covered the external audit plan, risk assessment for the audit of the financial year 2023/24 and an update on the Statement of Accounts for 2022/23 and 2023/24. He noted that the Audit Risk Assessment 2023/24 (Appendix 2) included the following areas:

· General Enquiries of Management

· Fraud

· Laws and Regulations

· Related Parties

· Going Concern

· Accounting Estimate

Sukvinder Kalsi further noted that the external auditor had issued an unqualified opinion on the 2022/23 Statement of Accounts on 28 March 2024 after they had been approved by this Committee on 11 March 2024. The draft (unaudited) 2023/24 Statement of Accounts were published on the Council’s website on 31 May 2024 in accordance with the statutory deadline, with the public inspection period ended on 12 July 2024.  Upon the completion of external audit work, the final 2023/24 accounts would be presented to the Audit Committee for approval.

Nick Halliwell (Senior Manager – Audit, Grant Thornton) introduced the external audit plan which included separate plans for pension fund and the Council’s general fund accounts. The significant risks identified were similar to that of the previous years except the disclosure requirements following the implementation of IFRS 16 by local authorities from 1 April 2024.  Among the similar ones, the greatest risk identified was materiality. Nick then shared with members the level of materiality being determined for the Council’s fund, senior officer remuneration, and Pension Fund under which a separate materiality was set to detect errors in specific accounts (page 24).  He said that any error above 5% of the materiality levels would be reported in the audit findings.

In regard to signing off the 2023/24 audit, Nick Helliwell noted that the external audit work had started in mid-June and the report would be ready for the Committee’s scrutiny around October to be signed by November 2024. While appreciating the audited accounts, the Chair stressed the need for this Committee to review the external audit reports and sign off accounts as soon as practicable at regular intervals.  Nick agreed to take this on board. 

Councillor Rowan Ree (Cabinet Member for Finance and Reform) said he was pleased to note that the Council managed to sign off 3 years of audits within one financial year which provided reassurance to the residents that LBHF was a well-run council. He also looked forward to the early signing off of the 2023/24 audited accounts.

Councillor Florian Chevoppe-Verdier highlighted the national economic context which continued to present challenges to the local government sector.  There were also increasing demand for local government services, especially in adult and children’s social care.  As such, it was no small feat for this Council to battle significant pressures and balance the book. He nevertheless noted the need to update the name of the Pension Investment Advisor (Appendix 2, page 62) and to rectify the website links for electronic reporting under Safecall (Appendix 2, page 67).

Councillor Chevoppe-Verdier was concerned about the reasons for ongoing audit reporting delays and asked about the situation in this Council. Nick Halliwell noted there had been issues across the local authorities that their accounts for 2022/23 or earlier were not signed on time. They were caused by issues  such as increased regulation, increased amount of work related to property and pension valuations, technical issues identified around infrastructure and the knock-on effect of the previous years’ delays due to the pandemic.  Nick noted that the new Parliament had agreed to implement a new backstop date and any 2022/23 audits not being signed off by mid-December 2024 would be accompanied by a disclaimer opinion. He was pleased to note that LBHF’s 2022/23 audit had been completed in March 2024, well before the new backstop date. He added that Grant Thronton was an outlier in audit sign-off, having completed 65% vis-à-vis 7% of other firms as at end of May 2024. The rate was envisaged to increase to 75% by the end of this September.

In reply to the Chair’s question on sector update, Nick Helliwell advised that the proportion of council audits done by Grant Thornton and other firms under the old contract was around 40:60.  He then went through the audit sign-off situations between the two since 2020/21 (page 93).  In this regard, Councillor Ree was concerned about Grant Thronton’s capacity in signing off the Council’s audits on time given their attention might be diverted to some trickier accounts of other local authorities. Nick reassured members that their London audit team had sufficient capacity to deal with regular audits by named colleagues, with extra manpower to be allocated on top of a normal team to undertake more complex audit work.

Members noted that the audit fees were set by Public Sector Audit Appointments (PSAA) as part of their national procurement exercise. In reply to Councillor Chevoppe-Verdier’s questions about the changes in audit fees, Nick Helliwell explained that in 2017, PSAA awarded a 5-year contract of audit for LBHF for the period between 2018/19 and 2022/23. In 2023, Grant Thornton was re-appointed under a new 5-year contract.  PSAA had set new fees for 2023/24 in response to the new regulatory framework and high inflation. By offering higher fees, PSAA also sought to draw more firms into the market to help clear the backlog. He added that under the new standards, the audit process became more laborious for both sides and the new fees also reflected the increased man-hours.

In this regard, Sukvinder Kalsi highlighted PSAA’s robust procurement process in appointing an external auditor which helped assure the residents that the finances of a complex organisation such as this Council were well governed. He reiterated that the proposed Council Audit Scale Fee of £413K for 2023/24 was very similar in cash terms compared to 10 years ago and it was lower in real terms. He reassured that the Finance Department would keep an eye on the audit fees. 

The Chair appreciated that a vast majority of councils had subscribed to PSAA’s service as there were few firms could undertake an audit of an organisation as complicated as a council like LBHF. Echoing the Chair’s view, Councillor Ree pointed out that in view of the lack of supply in the audit market, LBHF had probably obtained the best value for money audit services. 

David Hughes (Director of Audit, Fraud, Risk and Insurance) undertook to provide

information on the external auditor fee comparison data for London Boroughs for the 2023/24 audit year. He noted that H&F’s council audit fee was in the bottom half.

NOTE: The information has been circulated on 5 August 2024

RESOLVED

That the Committee agreed

1. to note the 2023/24 External Audit Plan as prepared by the Council’s External Auditor, Grant Thornton (Appendix 1); and

2. to note the contents of the report produced by Grant Thornton on Informing the audit risk assessment 2023/24 and the responses from management (Appendix 2).