Agenda item

To consider the attached report. (AGC-001-2018/19).

The Assistant Director (Accountancy) advised that one of the key roles of this Committee was scrutinising the annual Statutory Statement of Accounts. All Members of the Council would have the opportunity to debate the accounts at Full Council and part of that debate would be to consider the recommendation of this Committee. He advised that the External Audit was still being carried out as a result of the Government changing the requirement for the accounts to be completed by 31 July 2018 instead of the end of September.

The Assistant Director (Accountancy) informed the Committee that there had been no significant changes to presentation of the annual Statutory Statement of Accounts for 2017/18.  Two of the notes required by International Financial Reporting Standards required a major element of judgement, which were Note 3 “Critical judgements in applying accounting policies” and Note 4 “Assumptions made about the future and other major sources of estimation uncertainty”. The key critical judgement highlighted in Note 3 was that the Council does not currently need to close facilities or significantly reduce levels of service provision. If this were not the case it would be necessary to consider any assets that would be affected and any consequent impairment of their values. The main area included under Note 4, related to the Council’s pension liability. The substantial annual fluctuations in the pension liability made clear the element of judgement exercised by the actuary in establishing the pension figures. The Balance Sheet showed that the pension liability for the Council had decreased in the year from £81.121 million to £74.860 million. This was due to the £3.072 million increase in the value of the projected liabilities being lower than the £9.333 million increase in scheme assets.Further fluctuations were likely in subsequent years as it became clear how members of the pension scheme were responding to the change from a final salary scheme to a career average based scheme.The inclusion of the amount in the Balance Sheet showed the extent of the authority’s liability, if the pension fund was to close on 31 March 2018 but did not mean that the full liability would have to be paid over to the pension fund in the near future.

There were two other areas in the Statement of Accounts to bring to Member’s attention as having required a major element of judgement. The first of these was asset valuations, Property, Plant and Equipment (PPE) that had a value of nearly £758 million, followed by Investment Properties with a value of £114 million. The assets were revalued periodically to ensure their valuations were correct and up to date and the auditors had carefully considered all of the revaluations and were satisfied that the asset values were not materially misstated.

The other area had been the provision for business rate appeals. The Collection Fund included a Provision for Appeals of £3.4 million, which had been similar to 2016/17. This provision was calculated with the help of an external firm of rating experts who had analysed each outstanding appeal up to the end of March 2017 and had given a projected value for settlement. From April 2017, the new rating list had come into force, in addition to a new system of dealing with appeals. To date no appeals relating to the new list had been settled, consequently there was no real information to base the provision relating to 2017/18 on.

The financial statements for 2017/18 showed the St Johns Site as an asset held for sale, at £6.139 million. It was originally classified under Current Assets due to the completion of the sale expected in February 2019. However, now it looked likely to occur during 2019/20 and had therefore been reclassified as a Non-Current Asset. There had been no extraordinary items and no prior year adjustments.

There had been two significant adjustments required since the draft accounts had been issued which included;

(a)  The pension information had to be restated, as it was discovered that there was a significant difference in the overall estimated value of the fund at £6,630 million compared to what actually transpired which was £6,519 million. This meant the liability relating to the council recorded in the accounts increased from £72.001 million to £74.860 million; and

(b)  The Shopping Park which had increased in valuation and had been reclassified as an investment property and added to the Revaluation Reserve. However, on reclassification the revalued amount should have been moved to the Capital Adjustment Account but the asset management system had not flag the entry and it was unfortunately not spotted until after 31 May 2018. Nevertheless, it had no affect on the Council’s Comprehensive Income and Expenditure or Balance Sheet totals.

There were a couple of other more minor adjustments and reclassifications which was usually the case and neither the Internal nor External Auditor had reported any material weakness in internal controls.

The Committee noted that on the Index of Notes to the Statement of Accounts, Officer Remuneration, the remuneration in relation to the Assistant Director of Neighbourhoods looked concerning, as it appeared that they were earning more than the Chief Executive. The Assistant Director (Accountancy) advised that the Assistant Director of Neighbourhoods had been previously employed as a consultant and because of changes to regulations they had to be brought onto the payroll. The Committee asked that more information be included in the Statement to better reflect and explain the situation regarding these figures. The Committee also asked that some consideration be given when transferring a consultant onto the PAYE system and that a precedent was not set by giving the same rates as a consultant.

The Committee enquired whether the Council was in a financially stronger position than the previous year. The Assistant Director (Accountancy) advised that the Council’s position was largely unchanged and that the real challenges laid ahead for all local authorities when the Fair Funding Review reached its conclusion.

The Committee commented that there had not been enough time to test the integrity of the financials, or critically review the accounts, narrative or auditors' report in the two days since the publication of the accounts and concerns could be raised about how the Committee had been seen to discharge its responsibilities effectively. Furthermore, the legislative changes to the timetable for the preparation and approval of accounts and audit deadline for 2017/18 had been known in 2015, so there should have been no need for the late production. The Committee asked that auditors and the EFDC responsible officers reported back to a future meeting about what steps would be put in place to prevent this happening again.

Resolved:

(1)          That the auditors and the EFDC responsible officers report back to a future meeting on the steps they will put in place to prevent the late issue of the Statutory Statement of Accounts for consideration at the Audit and Governance Committee; and

(2)          That subject to any minor amendments required by the external auditors, the Audit and Governance Committee recommend to the Council that the Statutory Statement of Accounts for 2017/18 be adopted.