A verbal update will be given.

Contact: Richard Percival (0121) 232 5434

114.1  The Engagement Lead wished to update the Committee in relation to progress of the 2019/20 audit, the changes to the value for money approach for the 2020/21 audit and the Redmond Review which was published the previous week.

114.2  The Audit Manager reported on progress since 31 July 2020.  She explained that it had been unclear at the start of the audit progress the impact remote working would have on audit delivery, but, with the benefit of hindsight, she reported that remote working had extended the audit process as it was taking longer to verify data and to clarify any queries.  It was taking longer to get responses either via email or by arranging meeting times to go through queries in areas such as the physical verification of assets etc.

114.3  In respect of progress, the Audit Manager informed the Committee that the last block of work had been completed on 14 August when the audit team had met with the finance team and discussed a way forward to complete outstanding procedures.  A timescale has been agreed with finance to ensure all outstanding information requests could be provided at a time where external audit could allocate resources to the audit but also would fit with the responsibilities of finance.  The Audit Manager was pleased to report that the finance team had responded to the information requests in order to complete the audit and that three members of the External Audit team would be working through this information in the week commencing 28 September.  She confirmed that the plan remained to issue the opinion following the Audit Committee meeting on the 29 October 2020. 

114.4  In response to a query, the Engagement Lead confirmed that Shropshire Council were above the median line in terms of progress with the 2019/20 audit and was in a good place compared to other local authorities.

114.5  Turning to the changes to the Value for Money approach. The Engagement Lead explained that currently External Audit identified significant value for money risks, they look at those risks and issue a Value for Money Conclusion and that Value for Money Conclusion could be an unqualified conclusion, it could be qualified and there were two sub divisions of that, ‘except for’ which meant basically everything was alright apart from this issue or ‘adverse’ which was a fundamental governance issue which permeated widely through the organisation.  However, the Engagement Lead informed the Committee that all that was changing from 1 April 2020 (so for audits from 2021 onwards) the Code of Audit Practice which was issued through the National Audit Office had changed the Value for Money approach.  External Audit would no longer issue a Value for Money Conclusion in future, from then on they would be required to take a different, more intense approach. 

114.6  The Engagement Lead went on to explain that the Value for Money process would focus on three key areas, financial sustainability, governance and improving economy, efficiency and effectiveness. They would have to look at those areas in quite some depth and he gave some examples.  He explained that the thinking behind these changes were about promoting timely reporting on the big issues affecting the Council and the Auditor providing more accessible and meaningful reporting.  External Audit would have more responsibility to make very clear recommendations for improvement and to ensure the Council was implementing those recommendations.

114.7  The Engagement Lead confirmed that the Annual Audit letter would no longer be issued after this year.  The Audit Letter was essentially a cut down of the Audit Findings Report which this Committee sees in any case.  The Auditors Annual Report that External Audit will be required to produce will be something different and will comment on the work that they have carried out in terms of value for money, it will clearly identify any areas of weakness and identify and summarise their recommendations.  External Audit will be required to publish this by 30 September, but ideally when they issue the audit opinion.   In summary,  it will require more work from External Audit but it will also require a richer skills mix in terms of delivery of that work so all that adds up to additional costs which would be discussed with the Director of Finance, Governance and Assurance (Section 151 Officer) as it will be a significant fee variation. 

114.8  In response to a query, the Engagement Lead confirmed that there were no changes to the Head of Audit’s responsibilities and there would not be fundamental changes to the way External Audit interface with the Head of Audit in as much as we already clearly communicate with each other, but that the Head of Audit would see a more focussed interest and review of those larger audits that she carries out where significant weaknesses were identified to understand why those weaknesses occurred in the first place and whether the actions that are being agreed are both appropriate and effective.  The Head of Audit reassured Members that she had seen the consultation documents and were working on the types of evidence that would be required by External Audit and conversations with External Audit around this were ongoing.

114.9  In response to a query in relation to what was meant by a ‘significant’ increase in audit fees, the Engagement Lead explained the background to these changes but he could not currently quantify the figure for the audit fee as it was the subject of discussions and a clear costing needed to be undertaken once more was known about the extent of the work to be done however he did confirm that it would not be a minor figure.

114.10The Engagement Lead updated the Committee in relation to the Redmond Review which had been published the previous week (8 September 2020).  The review looked at Local Government Audit and Financial reporting.  The purpose of the review was to assesses the effectiveness of audit in local authorities and looked at the transparency of financial reporting.  Some very interesting recommendations had been made along with some very pertinent and fundamental findings.  His basic conclusion was that the current system for local authority auditing and financial reporting was not working and the arrangements that were envisaged in the 2014 Local Audit and Accountability Act had not materialised.  There was concern about a lack of coherence in the system, the local audit market is extremely fragile as there was a dearth of the skills required to deliver focused public audit and the fee structure as it currently was did not support the development of the public audit profession.  There was an urgent need for action to be taken to address these problems.  The Engagement Lead touched on the recommendations from the report and confirmed that a briefing paper would be provided for the next meeting with more detail.

114.11RESOLVED:

            That the contents of the verbal update be noted.