Agenda item

Report of the Director of Finance

The Committee received a report which set out the Council’s draft financial accounts for 2017-18, together with the Pension Fund annual report.

Andy Sayers, partner at KPMG, introduced their external report (appendix 4) drawing attention to the accelerated timetable which required draft accounts by 31 May and final signed accounts by 31 July.  He took the Committee through the key points stating that there were no audit differences, nothing significant was expected and an unqualified audit opinion was anticipated.  The Committee noted that the suggestions made related to presentation and that the previous years recommendations regarding controls had been adopted.

Mr Sayers referred to the valuation of land and buildings which was the key risk in the significant audit risk schedule.  The auditors had reviewed the use of the rolling revaluation model and had assessed the risks as to whether assets not subject to revaluation had been materially misstated and to determine whether movements in market indices indicated that fair values had moved materially over that time.  Although some elements of the work in this area were ongoing, the work completed to date had not identified any issues requiring the Committee’s attention. 

The Committee was informed that there were no issues with regard to the pension assets and liabilities audit risk.  Work was being undertaken with regard to the pension fund harder to price unquoted investments.  The pension assets and liabilities movements were reflected correctly in the financial statements. 

With regard to value for money, control of the MTFS had improved and was more rigorous since the last audit.  Reference was made to the representation letter which was circulated at the meeting.

A Member referred to the issue of the external audit report prior to the completion of the audit, particularly in view of previous issues around HRA, and bank reconciliation issues.  The Auditor reported that the recommendations made three or four years ago had been gradually reduced and cleared with a higher level of focus and review of bank reconciliation, and the HRA issue of indexation had been taken into account.  A number of small items below £400k/£500k were not reported due to them being under the materiality level.  No audit adjustments had been required and none were expected.  Work had always been outstanding at the time of the report to Committee but the auditors ensured that significant areas had been completed.  In response to a question as to whether triviality issues were listed as accumulated and could become significant, it was reported that such issues were captured and could be referred to the finance team.

In response to questions, Members noted the following:

:

·                     the total for surplus/deficit on the provision of service in the notes to the Financial Statements 5.10 property, plant and equipment had been printed out of alignment;

·                     the difference between the specific pension related figures in 5.5.2. note to the movement in reserves statement and 5.38.5 and note 20 actuarial present value of promised retirement benefits was due to one being cost and the other being distribution;

·                     the pension fund included employers in addition to Harrow Council but the accounts related solely to the Council.  The officers undertook to reflect this in future reports;

·                     the auditors assessed the qualifications of the internal valuer referred to in the report and their expert challenged the indices and looked at methodology;

·                     the reduction in the book value of finance leases (note 5.35.1.1) from £509k in 2016?17 to £113k in 2017?18 was due to depreciation, mainly for vehicles;

·                     it was not considered that Brexit required additional disclosure.

A member was of the opinion that there were significant financial related parties and asked why there had not been disclosure of loans to council subsidiaries.  The Auditor stated that it was a decision for the Council whether to make disclosure as there was exemption for employees working for subsidiary companies.  The Director of Finance stated that the main consideration was the value of the trading activity and all loans were included in the accounts.  The officer undertook to indicate to the Member the location of the information in the treasury management policy.

In response to a question, the Committee was informed that 5-10% of audit work on regeneration and valuation was incomplete.  The Member referred to the £1.75 billion planned investment and sought information on the audit focus on assets under construction and the risk items to bring in the perceived value.  In response the auditor stated that the focus was on invoices and surveyor reports and that neither planning applications or future assets were part of a statutory audit.  The figure for assets under construction comprised Council land and not assets being developed by others so was therefore not £1.75 billion but £103,570k.

The Auditor was asked if he was concerned at Harrow’s position on the benchmark graph for the total general fund reserve.  The Auditor responded that it was for the S151 officer to determine the level of reserves and not the auditors.  The value for money audit considered reserves as a factor and whilst previously identified as a risk the position had since improved.

The Chair thanked the auditors for the work undertaken to date.

RESOLVED:  To

(1)          note the reports of the External Auditor on matters arising from the audit of the Statement of Accounts 2017-18 and the Pension Fund Annual Report 2017-18;

(2)          approve the audited Statement of Accounts 2017-18 and note the Pension Fund Annual Report 2017-18 and authorise the signing thereof by the Chair;

(3)          authorise the Director of Finance, following consultation with the Chair, to make any final amendments to the Accounts and Pension Fund Annual Report arising from the external audit prior to the signing of the accounts by the auditor; and

(4)          note the Summary Statement of Accounts 2017-18.