Agenda item

Report of the Director of Finance and Assurance

The Committee received a report of the Director of Finance and Assurance which provided an update on the progress of the 2021/22 external audit.

Stuart Firth and Paddy Sadd from LLP Mazars, the Council’s external auditors, were welcomed to the meeting and introduced the report.  Particular attention was drawn to delays during the execution phase of the audit due to additional work arising from: changes in the ledger systems during the year; the requirement for further evidence to support the valuation of property, plant and equipment and investment property; and awaiting the outcome of consultation on a national issue regarding accounting for infrastructure assets. It was noted that these factors had impacted on the timeline.  With regard to significant risks, work on the migration from SAP to D365 had progressed and, having reviewed the internal assurance, been seen as appropriate and no concerns had been raised.  Work on property, plant and equipment had progressed, potential issues had been finalised and the next steps were under discussion with the officers.  With regard to Value for Money, advice from the technical team was that until the case concluded a conclusion could not be issued.

In response to  questions as to the type of risks involved with regard to property, plant and equipment, the Committee was informed that the work was complex, highly subjective and could result in a significant difference between valuations.  A lot of in depth testing and testing of input data would take place to ensure completeness.  The use of indexes reflected market movements and could influence valuations quite dramatically.   The impact on the financial statement of the Council with regard to property, plant and equipment valuations was difficult to determine until it was complete and there could be an accounting adjustment.  Work on the valuation of tangible assets, which was essentially software, had progressed with the Council having completed the review and populating and testing were now taking place.

The Chair queried why, as the bulk of property was schools and parks, the valuations were high risk when they could not easily change hands.  The Auditor explained that it was not so much comparative values but that it was not possible to observe market price.  Furthermore, the Council owned investment property, Council dwellings, and general fund properties with a variety of rental returns, values and leases.  Local Government Audit was of the same standard as for an investment company with the same steps.  It was a large task for the Council to support the audit of individual valuations and requests for base data.

A Member referred to the challenges to the methodologies of the Council valuer and requested information on the challenges and what had changed, whether the previous valuations had been correct or would the Council need to prepare for radical change in valuations in comparison with the previous year.  The Auditor responded that it was the first time an internal valuation expert had been involved due to the levels of risk shown in the previous year.  There had been no evidence of incorrect valuations from testing but some elements of the 2020/21 financial statement had given rise to additional risk and there was potential for material adjustment.  In response as to whether a methodology would be established for future valuations, the Auditor stated that it was not their role to put this forward but was to comment on what the Director presented to them.

In response to a question as to the ledger system, the Auditor reported that, as the entire system had changed during the year, there were data sets from two systems midway through the year.  The Director of Finance and Assurance stated that the change of financial ledger was due to need for renewal and was not intended to be midyear but challenges with dynamics had delayed implementation.

With regard to questions concerning the Civic Centre, the Auditor reported that communications with officers on the timeline for the Civic Centre accounting treatment would begin the following week.  Mazars was currently giving consideration to its planning process for 2022/23 and would then have a more informed programme.  The Chair requested that the Committee be informed of the timetable when available.

It was noted that although the Civic Centre had not yet been decommissioned there were changes of classification in statements and it had been identified as a risk because of the differential between capital and revenue.  It was unusual for a Council to have an inventory of property for sale and it was treated as capital.  The Auditor stated that the technical team was reviewing the position and he would endeavour to get an update for the next meeting.  The Chair stated that he was surprised that the Harrow Council Hub was to be revalued as it was under construction and its costs known.

Members expressed disappointment that the audit had not yet been concluded which had resulted in the Committee scrutinising an update and incomplete audit report.  The Committee suggested that the Auditors conclude except for certain items.  The Auditor said that it was a general issue across the Council and Mazars’ Director had raised it with the internal team and was working to see if there was any scope to resolve.  The Director of Finance and Assurance stated that some form of assurance was provided at regular meetings and although there were IFRS16 challenges, material issues were not being raised.

The Chair stated that he hoped the audit would be concluded by the next meeting of the Committee,

RESOLVED:  That the Audit Progress Report 2021/22 for the Council and the Pension Fund be noted.