To receive an oral update from the Council’s external auditors, Grant Thornton.
Minutes:
Mr Paul Cuttle from the Council’s external auditors Grant Thornton gave an oral update on the external audits of the Council’s financial statements. In relation to 2020-21, it was noted that Grant Thornton had presented their Audit Findings Report to the Committee in July 2023 which explained that the Audit had been largely completed and that it was ready to be signed-off. However, due to the potential housing maintenance fraud, the audit was paused whilst further information was sought in that regard. Following discussions with management, Grant Thornton were now in a position where they were comfortable, subject to agreeing a disclosure in the financial statements for 2020-21, and some audit procedures that would enable sign-off of those accounts within the next month.
In relation to the audits for 2021-22 and 2022-23, which were both outstanding, Mr Cuttle explained that there had been significant delays nationally in completing local government external audits. The Department for Levelling Up, Housing and Communities (DLUHC) had expressed an intention to take various actions to catch up on the backlog of audits, which included the introduction of a backstop date after which, if an audit was not completed, there would be no further work undertaken. In these circumstances, this would require a disclaimer audit opinion issued in respect of any incomplete audits. The Committee was informed that the original intention was that the backstop date would be March 2024; however, it was now understood that the likely backstop date would be September 2024, but this would be subject to consultation which had not yet commenced. It was noted that, whilst the details would follow, there would need to be legislation required to do this. The impact on the Council would be that there would be two years of outstanding audits.
Given the ongoing investigation into possible housing maintenance fraud and the potential implications for the Council’s financial statements for 2021-22 and 2022-23, it was unlikely that these outstanding audits would be completed within the period envisaged. Grant Thornton were therefore proposing that they would take up the disclaimer option for those two years of audit and then start afresh in 2023-24.
It was not clear yet what the intention would be around opening balances for the 2023-24 audit, given that there would be two years' worth of incomplete audits, but it was expected that this would be clarified through the consultation period.
During the debate, the following points were raised:
· The position regarding incomplete audits was deeply unsatisfactory and was a reflection of how the audit system nationally had failed.
· There was no guarantee that external audits would be completed and signed off in the future unless there was a fundamental change in how they were undertaken. The Council would still be faced with the problem of opening balances and comparables.
· In response to the above comments, Mr Cuttle noted that there had been no problems signing off the Council’s audits up to 2020-21, which was the first year the Council had changed its financial systems and led to significant delays in being able to complete that audit. Mr Cuttle agreed that there were clear issues with auditor capacity. Grant Thornton, whilst accepting that they would not necessarily achieve the initial deadline for 2022-23 audits, would be signing off other audits in Surrey. The Audit Findings Report presented to the Committee last July was a substantial document that highlighted significant material changes to the financial statements that required a significant amount of work to get to that position. Had the accounts been of a better quality, the Council would not be in the position it currently found itself in. The additional work required due to the issue of opening balances could cause significant delays to the 2023-24 audit.
The Monitoring Officer commented that it was beneficial for the Committee to hear from the external auditors some of the reasons around why the 2021-22 and 2022-23 accounts might not be audited. It was clear that there were some legitimate and good reasons for that and that these problems were being experienced across the country. The Committee was reminded, however, that the Council was still in a difficult position because there was a statutory obligation to publish audited accounts. Further legal advice may have to be given to the Committee in that regard in due course.
The Committee
RESOLVED: That the oral update on the external audits of the Council’s financial statements be noted.