Agenda item

(Report of the External Auditors – Grant Thornton)

Mr John Gregory from Grant Thornton presented the External Audit Plan for the year ending 31 March 2020 which provided an overview of the planned scope and timing of the statutory audit of Lichfield District Council for those charged with governance.  Members’ attention was specifically drawn to the addendum which reflected the unprecedented global response to the Covid-19 pandemic.  Mr Gregory highlighted the 3 significant risk areas and referred to the additional risk of Covid-19 in the addendum which had been prepared once the seriousness of Covid-19 had been realised.

In the Audit Plan the implementation of IRFS16 was discussed and Mr Gregory stated that this had now actually been deferred for a year so it was no longer a risk for us as specified in the Audit Plan.

Mr Gregory referred to the materiality page, which was in line with Grant Thornton’s normal approach, a 2% benchmark is used for those authorities they consider to be well-run.  He referred to the value for money page which says that risk assessment remains in progress as over taken by events and the impact of Covid-19 on the financial situation – so this may be labelled differently as “impact of Covid-19” moving forward. 

Mr Gregory explained that the addendum showed the additional significant risk re: Covid-19 and he explained that this was initiated back in March because it was not known what impact Covid-19 would have on Lichfield District Council in producing the accounts nor Grant Thornton’s ability to audit the accounts i.e. no one knew how much sickness would be incurred or how remote working would work and what the actual impact of Covid-19 would be on the accounts.  Mr Gregory referred to the impact valuations of land and buildings for example – valuations done on a market basis which took a hit towards the end of the year.  It is then an additional significant risk for a number of reasons.

It was questioned what arrangements had been put in place bearing in mind this year is going to be even harder to make sure the pension valuation would not be revised and updated very late in the day like last year.  Also, it was noted that it seemed likely that the valuation would be significant different.  Mr Gregory said there were 2 aspects to this, it was partly about the timing of when the actuaries do their assessment and whether they do a second review and also the timing of the assurance work done for us by the auditors of the Staffordshire Pension Fund.  He said that McCloud was the main issue last year and also the difference between the estimated asset values and the actuals a couple of months later.  He said he was hoping McCloud would not be an issue this year but said there is a potential “fly in the ointment” in that the government is now consulting on the actual remedy.  The fact that asset values become so volatile at year end is causing problems and means that the accounts will need to reflect the actual asset values as opposed to ones estimated 3 months in advance.  He said in terms of getting the assurance of the auditors at Staffordshire Pension Fund, Grant Thornton had been in touch for that assurance but the County Fund Managers have said the delivery of the assurance is not going to be early – September is the expected date as it is dangerous to give assurance on the pension fund before that time.

Mr Thomas said that the big issue last year for Staffordshire was that the investment returns were different at the end of the financial year compared to the date the valuation took place which was an estimated value (in December).   In that period there was a material difference in the return so the valuation changed.  He said it was being managed now by delaying the valuation report to take this into account.  He said the Staffordshire County Council Auditors, EY, had advised him they hoped to have this done by the end of August which would mean September/October we could finalise our accounts and approve but we were currently in the lap of the Staffordshire Pension Fund and Auditors unfortunately.

Mr Gregory said it was a complicating factor where pension funds have significant property assets the valuers will be valuing them with a material uncertainty and we may need to consider whether there is a material uncertainty as to asset values in the accounts as well – this will need to be dealt with going forward.

The Chairman agreed that McCloud was and is a real issue – equalisation of member benefits is the issue to be valued and recipients have been given 2 options.  There has been no ruling from judges yet, which would affect how this valuation is going to go and so it was so very difficult for the County Treasurers/Local Authorities & Staffordshire Pension Fund and their Auditors.

A query was received on the statement in relation to the housing benefit fee about self-interest.  Confirmation was sought that there was no issue there for Lichfield District Council because of the small nature of the fee.  Mr Gregory responded and said self-interest is one of the 6 threats identified in the Auditor’s Ethical Standards and is one of the ways you can judge whether an auditor is likely to be independent.  He explained the circumstances in which self-interest could be a problem – for example, if non-audit service fees were much higher than the basic audit fee.  Mr Thomas reminded the committee that they had gone through the options available for this specific audit previously and agreed and took the decision that to have the same auditor covering housing benefit work as well as the main audit as this would be less problematic and saved costs.

RESOLVED:- The Committee noted the External Audit Plan for Lichfield District Council 2019/20 & Addendum for year ending 31

            March 2020.