Agenda item

The Committee heard from the External Auditor who provided an overview of the year-end report, known as the ISA260, which was required under the Local Audit and Accountability Act and various auditing and ethical standards. It was recalled that the Audit Plan, which had been presented at the April 2024 Governance and Audit Committee meeting, had set out materiality levels, risks to be examined, and the aims of the audit. It was explained that the current report built on that by providing the findings. The Auditor noted that the audit was substantially complete, pending the receipt of signed management representation letters, financial statements, narrative statements, and the Annual Governance Statement. It was highlighted that a clean audit opinion was anticipated, indicating that the accounts provided a true and fair view of the Council's financial performance and position as of 31 March 2024.

The Auditor continued, detailing audit misstatements which had been identified, alongside the Officer amendments to those misstatements, and any audit recommendations. It was outlined that four significant risks had been identified, as well as two other risks. One misstatement was highlighted by the Auditor, specifically in relation to the year-end value of surplus land. It was confirmed that the misstatement had since been amended in the accounts. The Auditor then emphasised that overall, valuations were deemed optimistic, but within an acceptable range. A minor point regarding management review controls over valuation was raised, with the Auditor acknowledging that it was typically inappropriate in a public sector setting to use an additional valuer to meet auditing standards.

The Auditor detailed the process involved in auditing the valuation of investment properties, noting that the Audit Team were comfortable with the valuations.

The Audit Team had identified a risk in relation to the valuation of the local government pension scheme, including the associated liability; the Auditor highlighted a necessary adjustment of £7.9 million, which it was confirmed had since been made.

Another identified risk, it was explained, was related to management override. The Auditor highlighted that an issue regarding the segregation of duties had been identified, which it was confirmed had since been rectified.

The Auditor also addressed other audit risks, such as recognition surrounding revenue expenditure capital expenditure, and confirmed that no significant concerns were raised in these areas. It was stated that the narrative statement and Annual Governance Statement had been reviewed, with no misleading information found. In addition, no significant concerns regarding Value for Money had been flagged by the Audit Team.

The Auditor continued his presentation outlining the audit fees, including an additional fee of £9,500 for the revised ISA315, and an additional fee of £8,000 for the completion of the audit. It was confirmed that audit fees were set by Public Sector Audit Appointments (PSAA).

The Audit Team’s independence was confirmed by the Auditor. The presentation was concluding with a summary of recommendations. It was noted that appropriate changes had been made in response, and all identified audit misstatements had been corrected by Officers. The Auditor concluded by confirming that a clean audit opinion would be issued upon receipt of the necessary signed documents.

The Chairman invited questions from the Committee.

A Member of the Committee enquired about the potential for increased efficiency in future audits and whether any new insights had been gained due to the fresh perspective of the new External Audit Team. The Auditor confirmed that a debrief process with the Management Team had been committed to, which would identify areas for improvement for both parties. It was acknowledged by the Auditor that first-year audits tended to be less efficient due to the learning curve involved. The Auditor added that while fresh perspectives could be beneficial, it would be challenging to comment on the performance of previous External Auditors.

A Member of the Committee further questioned the surplus land valuation issue of £1.484 million, enquiring why the figure was not considered to be a concern to Auditors. The Auditor clarified that the adjustment had since been made in the financial statements, and explained comments in the report were in relation to the over-optimistic nature of the valuation assumptions. In terms of what would cause concern, the Auditor clarified that errors in figures related to operational land and buildings, or investment properties, had the potential to raise further questions, however, the valuation of the assets in question did not raise concern. The Chairman added that the surplus land under discussion was in the Gainsborough area and had been reallocated under the Central Lincolnshire Local Plan (CLLP) from business use to recreational use, leading to a lower market value. A Member of the Committee expressed satisfaction that the issue had been identified during the audit process.

A Member of the Committee sought further clarification regarding the over-optimistic valuations; in response, the Auditor explained that the valuations in relation to operational land and buildings were within an acceptable range. It was added that these valuations did not indicate deliberate management override as they were restricted to one specific area attributed to an external valuer, rather than indicative of a general theme of over-optimism.

Vice-Chairman Cllr Dobbie enquired about the timing of the land reclassification. The S151 Officer clarified that the reclassification had occurred during the most recent review of the CLLP, within the last 18 months. It was noted by the S151 Officer that the Finance Team was previously unaware of the reclassification, leading to the valuation discrepancy. The S151 Officer explained that a new mechanism had been established to ensure that any changes in land use were promptly reported to the Finance Team for accurate valuation going forward.

The Chairman asked about the Virgin Media appeal and requested assurance that changes to the narrative disclosure had been or would be made. The S151 Officer clarified that appeals were reviewed, and provisions were made accordingly, although they were not typically discussed in public session. The Auditor confirmed that the necessary disclosures had been made in the financial statements.

A Member of the Committee raised a question regarding the impact of councils going into pension surplus, in response, the S151 Officer assured the Committee that the trustees of the pension scheme would need to ensure that all resources remained within the scheme. It was added that there was currently no power for the Chancellor of the Exchequer to take from local government pension schemes in that manner.

The Chairman, who stated that he also sat on the Pensions Committee at Lincolnshire County Council, confirmed that the Council was not in surplus to the extent that it would be vulnerable to such action. It was confirmed by the Chairman that the focus remained on ensuring assets were available for future payments to beneficiaries.

The Chairman thanked the Auditor for the detailed presentation and for addressing the Committee's questions.

With no further comments, and having been proposed and seconded, the Chairman took the vote, and it was

RESOLVED that the content of the report be accepted.