Agenda item

·        To present the Statement of the Accounts 2018/19.

·        To present the report of External Audit on the Financial Statements.

4.1       The report of the Director of Function (Resources)/Section 151 Officer incorporating the Final Statement of the Accounts for 2018/19 following audit was presented for the Committee’s consideration.

The Director of Function (Resources)/Section 151 Officer reported that the statutory deadline for the completion of the 2018/19 audited accounts has again been met. Improvements which the audit process identified last year have been made and are continuing. All issues that have arisen throughout the audit were dealt with promptly and in a satisfactory manner.

The Officer said that details of the main amendments to the draft accounts are set out in External Audit’s report on the Financial Statements below. All amendments which have been agreed as requiring restatement by the auditors, Deloitte have been processed and are contained within the Statement of the Accounts. The amendments to the draft Statement were not significant and have been largely confined to amendments to a small number of disclosure notes and the Cash Flow Statement. At this stage no financial changes have been made to revenue or capital meaning that the main financial statements remain the same. The Auditors’ report highlights an ongoing uncorrected misstatement from 2017/18 in connection with the accounting treatment of the pension’s lump sum for unfunded historic pension costs. This relates to differing interpretations of the accounting arrangements for the lump sum paid in 2017/18 for these costs which led to a saving of approximately £200k. This was not amended due the differences in the Authority’s and the Auditor’s interpretation of written guidance on the issue.

Following their work on the Statement of the Accounts, the Auditors have made 3 recommendations in relation to accounting and payroll control; 1 recommendation in relation to IT and 1 recommendation in relation to corporate controls which are detailed in their ISA 260 report.

With regard to the uncorrected misstatement, the Officer clarified that in 2017/18 the Authority made a lump sum payment of £3.66m to the Gwynedd Pension Fund to cover the three years to 2019/20 on the basis that this sum would be invested and the Authority would receive a discount (the return on investment as part of the pooled pension fund monies being greater than had the Authority invested the sum on its own). The Auditors are of the view that the payment should have been charged to the revenue account as expenditure in 2017/18 in the year it was made. The Authority takes a different view and consequently it was agreed that in order to lessen the impact of the payment on the Council’s general fund balance, a negative reserve be created which will unwind over the course of the three years meaning that by next year the sum will have disappeared from the accounts.  

4.2       The report of External Audit on the audit of the Financial Statements for 2018/19 (ISA 260 report) was presented for the Committee’s consideration.

Mr Ian Howse, Engagement Lead for the Financial Audit confirmed that subject to the satisfactory completion of outstanding work as outlined in paragraph 6 of the report, it is the Auditor General’s intention to issue an unqualified audit report on the financial statements once the Authority has provided a Letter of Representation based on that set out in Appendix 1 to the report. In terms of audit outcomes, the report highlights a misstatement which has not been corrected by Management in relation to the classification of a contribution of £3.66m made by the Council to the Gwynedd Pension Fund to cover the fixed element of the employer contributions for the 3 year period 2017/18 to 2019/20 (Accounting standards requiring that certain items be recognised in the year the payment is made rather than spread over a period of time which is how the Authority has dealt with the pension contribution payment).  Misstatements that have been corrected by Management are outlined in paragraph 10 of the report. The Financial Audit Plan submitted to Committee in April provided information regarding the significant audit risks that had been identified during the Auditors’ planning process. The table at section 12 of the report sets out the outcome of the Auditors’ audit procedures in addressing those risks. The audit was conducted in line with the Financial Audit Plan. The Auditors have no concerns about the qualitative aspects of the Council’s accounting practices and financial reporting and found the information provided  to be relevant, reliable, comparable, material and easy to understand. Accounting policies and estimates are appropriate and financial statement disclosures unbiased, fair and clear. No significant issues were encountered during the audit and there are no matters significant to the oversight of the financial reporting process that require reporting. The recommendations arising from the financial audit work along with Management’s response to them are set out in Appendix 3. These are areas where External Audit has identified opportunities for improvement should resources permit, but have not impacted on the overall audit opinion. These will be followed up next year and any outstanding issues will be included in next year’s audit report.  

The Committee considered the information presented and made points as follows –

•           The Committee noted that there is a difference of opinion with regard to the treatment of the £3.66m payment made by the Council to the Gwynedd Pension Fund. The Committee sought assurance that External Audit is comfortable with the Authority’s approach to the matter and the way in which it has accounted for the payment in the financial statements. 

Mr Ian Howse confirmed that External Audit does not consider the misstatement to be material (the quantitative levels at which such misstatements are judged to material for the Isle of Anglesey County Council being £4.91m) in terms of affecting the views of readers of the accounts as regards the conclusions they might come to on the overall financial position of the Authority, hence the recommendation that the Auditor General issues an unqualified opinion on the financial statements. Had the Auditors been uncomfortable with the misstatement then they would have recommended that a qualified audit opinion be issued.

•           With reference to External Audit’s recommendations with regard to password parameters, the Committee sought assurance that the Authority’s approach to password security and password controls is suitably robust. The Officers clarified that staff are now advised to use a password of 9 characters (as opposed to the previous 7 characters) which whilst offering increased security is not so complicated as to make it difficult to memorise meaning that staff are less likely to write it down which is contrary to policy. Passwords also have a longer expiry period. Lockout happens after 3 failed login attempts at which point the user must contact the IT service Desk/Systems Administrator to request unlocking. With certain systems (but not Payroll) the system password is linked to the network password thereby dispensing with the need for two separate passwords.

With regard to the recommendations made by External Audit, the Director of Function (Resources)/Section 151 Officer assured the Committee that these are receiving attention but that the recommendations relating to payroll controls may take longer to address due to the restructuring of the Payroll/Payments function which is a lengthy process. The restructuring, once complete, will address the segregation of duties issues which the Auditors have highlighted. However, clear separation of duties can sometimes be more difficult to achieve in a smaller team and particularly so at times of staff absences meaning that on such occasions checks may have to be made after, rather than before payment has been made.

It was resolved –

•           To accept and to note the Statement of the Accounts for 2018/19 and to recommend its acceptance to the Full Council.

•           To note External Audit’s Report on the Financial Statements for 2018/19.

•           To approve the Annual Governance Statement for 2018/19 and to refer the Statement to the Leader of the Council and the Chief Executive to be signed.

NO ADDITIONAL ACTION WAS PROPOSED