Agenda item

Report of the Director of Finance

The Chair welcomed Lucy Nutley and Gary McLeod from Mazars, the Council’s external auditors.   Dealing first with the report on the authority’s main accounts, Ms Nutley reported that the Council had presented a good quality set of accounts and working papers as background; only minimal adjustments had been considered necessary and the external auditors would be in a position to issue an unqualified opinion in due course.  As the Council had helpfully submitted draft accounts at an early stage and this was an early audit committee meeting, work on the audit was not quite complete with the final report expected in the following week.  The external auditors’ analysis of risks had revealed no significant issues.  In respect of the impact of the McCloud case on pensions liabilities, this was not regarded as a material factor requiring any adjustment to the authority’s accounts.

A Member compared the £3.8m impact of the McCloud case on pensions liabilities with the adjusted misstatement figures in the external auditors’ report and queried why this item had not been included as a misstatement.  Ms Nutley advised that should the Council wish to include it as an adjustment, then this was in order, but the external auditors considered that there was no requirement to do so. 

The Member also queried why the auditors had not concluded that recommendations on internal controls were required when the Committee itself received regular reports proposing various controls to respond to various risks and issues raised by Council officers.  Ms Nutley advised that the scope of the external audit was different to local management action which had a much wider remit; in terms of the requirements of external audit, it had been judged that there were no significant issues to report.

The Member referred to the significant swing in the valuation of pension fund investments from one year to the next, which he had assessed as approximately £80m.  Ms Nutley advised that the external auditors relied on the work of the fund actuary which was itself monitored through national arrangements.  The figures provided by the actuary had been much as the auditors expected and this scale of movement in investment valuation was in?keeping with many other local government pension funds.  Mr McLeod added the assumptions of a range of local government pension fund actuaries, who applied the “IAS 19” standard, had been considered and these were comparable and consistent; the external auditors were alert to such actions as an authority asking an actuary to vary valuation assumptions, but this had not occurred with Harrow and therefore they considered the valuation provided to be acceptable.  The Member felt that this amounted to the auditors checking the process rather than the actual valuation figures themselves; he asked whether he could contact the auditors for more detail about this and this was agreed. 

Another Member asked about the external auditors’ assessment of the decision-making processes related to the Council’s regeneration programme since this had been subject to a limited assurance internal audit and a special external review.  Ms Nutley underlined that these reviews were about decision-making arrangements prior to the financial year now subject to audit (2018-19).  However, the regeneration strategy had been considered in discussions with the Director of Finance and work done on issues relevant to the audit.  The Head of Internal Audit confirmed that she had brought a report to the Committee on the issues raised in the reviews of decision-making.  The Member wished to register his disappointment that the external auditors had not also addressed the concerns about the regeneration programme as he considered it would have been helpful to the Council to have their perspective.  The Head of Internal Audit advised that it was important that the work of her team did not duplicate that of the external auditors, and the regeneration programme had been subject to separate reviews and her own full report to the Committee; in response to the Chair’s question, she confirmed that the various actions recommended in her report were being implemented. 

Ms Nutley turned to the pension fund accounts, reporting that the Council had presented a good quality set of accounts and helpful working papers as background; only minimal disclosure errors had been identified and the external auditors would be in a position to issue an unqualified opinion in due course.

A Member queried what appeared to be different figures for the Council’s contributions to the pension fund as between the Council’s accounts and the .Pension Fund accounts.  The Treasury and Pensions Manager advised that the £22m figure in the authority’s accounts reflected the actuary’s estimate of contributions while the £19m figure was the actual employers’ contributions; he referred the Member to Note 7 (analysis of contributions receivable) as the explanation.  The Member suggested this item might have to be addressed in the accounts as a ”related party transaction” and in response, Ms Nutley agreed to check this point.  

The Chair was pleased at the external auditors’ acknowledgement of the quality of officers’ work on the accounts, and at the positive assessment of the Council’s financial management reflected in the auditors’ provisional judgements; he considered this to be a significant achievement especially against a background of severe financial pressures on local government. 

RESOLVED:  That

(1)          the reports of the External Auditor on matters arising from the audit of the Statement of Accounts 2018-19 and the Pension Fund Annual Report 2018-19 (appendix 4) be noted;

(2)          the Statement of Accounts 2018-19 at appendix 1 (which are subject to the issue of the audit opinion) and the Pension Fund Annual Report 2018-19 at appendix 2, be approved and that the Chair be authorised to sign the accounts;

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

(4)          the Summary Statement of Accounts 2018-19 (appendix 3) be noted.