Agenda item

(A report by KPMG, External Auditors)

The External Auditor Manager, KPMG, presented the Draft External Audit Plan and Strategy report, which provided details of the indicative external audit strategy and audit plan and memorandum for the financial year end as at 31^st March 2024. The aim of the report was to lay out the nature, scope and timing of planned external audit activities for the financial year and also to provide some mandatory communications that were required to be made to the Audit and Governance Committee in line with audit and standards.

The Engagement Director, KPMG highlighted the following areas:

·       Materiality figure

·       Significant risks to the financial statements that were deemed to be the most significant or greatest possibility of material misstatement within the financial statements, whether due to error or fraud:

o   Valuation of land and buildings

o   Management override of controls

o   Valuation of post retirement benefit obligations

·       Mandatory communications

·       Value for money

·       Summary of risk assessment

·       Value for money arrangements

·       Recommendations raised and followed up

Members noted that three performance improvement observations had been identified, which management had responded to, in respect of:

·       Group performance

·       Risk management reporting

·       Formalisation of review of budget monitoring action plans

Councillor David Middleton suggested that an executive summary be added to future reports to highlight the key areas. He referred to page 19 of the report and requested clarification as to whether any fraud had been identified in respect of management override of controls. The Engagement Director, KPMG advised that nothing had been identified to date.

Councillor Middleton referred to page 20 of the report in respect of Valuation of post retirement benefit obligations and queried whether any benchmarking had been done against the market and other Councils. The Engagement Director, KPMG advised that there was a specific risk related to error in terms of the assumptions that will be used within the valuation of those liabilities. As part of their work KPMG had engaged someone specifically to look at the key assumptions. As part of that KPMG assessment within a range of terms of whether they were prudent, optimistic or neutral. As part of that they also considered the assumptions used by all other pension funds in order to determine appropriateness. All that information enabled them to provide assurance to the Committee.

Councillor Middleton queried whether the auditors were of the opinion that the pensions were moving into surplus. The Engagement Director, KPMG confirmed that yes that was their opinion. The majority of risks that they had seen over the past two years had moved on to the surplus position. The sensitivity of those assumptions that were used required careful consideration in terms of what effect that has on the surplus or deficit position.

Councillor Middleton referred to page 41 of the report and queried whether the authority was getting value for money in respect of PSPS. He queried how the performance of services was monitored and actions identified in response to areas of poor performance and the monitoring of outsourced services. The Engagement Director, KPMG advised that the auditors were required to understand the arrangements in place for the Council to monitor whether value for money was being achieved. He added that at this stage they were assured that through the consideration of engaging an independent experts to provide a commentary on those arrangements and the fact that it was constantly a point of consideration and assurance being gained by the Committee. From their role as external audit it was to understand the arrangements in place to consider and constantly challenge and apply management scepticism over value for money arrangements. The current arrangements were deemed to be appropriate. The External Auditor confirmed that it would not be for them to determine whether value for money was being achieved in the arrangements and this was for the Council to consider.

Councillor Middleton also queried whether the Council should have a customer supplier relationship with PSPS or not. The Engagement Director, KPMG stated that it was their role as external auditors to remain independent. He advised that internal audit may be better placed to answer that query. The Deputy Chief Executive – Corporate Development and S151 advised that South Holland District Council and East Lindsey District Council had commissioned Grant Thornton to review the PSPS arrangements and to test that it was providing value for money, back around 2017. As a result, those organisations had decided to extend the arrangement in that it was providing value for money. She added that PSPS did undertake its own benchmarking on a regular basis, which compared favourably to other delivery options from what she had seen. Members noted that the majority of the staffing costs within PSPS were not linked to NJC and therefore savings were being made as a result of that.

Councillor Gleeson declared that he was a Director of PSPSL. He referred to the complexity of the report and suggested that an executive summary at the beginning of the report would be useful to both members and the public. The Chairman agreed and requested that an overview be included within all future reports to the Committee, to include the key bullet points highlighting the key issues and referring to the relevant page numbers within the report documents.

Councillor Cantwell referred to pages 6 and 7 of the report and queried the dates of the planned responses to identify when the actions would be carried out. The Engagement Director, KPMG referred to page 34 of the report which contained the audit cycle and timetable. He explained that it was expected that the work would take place when undertaking the final financial statements audit visit which was due to due to be done throughout July, August and September. He added that a more detailed timeline would be provided in future.

Councillor Middleton referred to the audit procedure for PSPS and the Deputy Chief Executive – Corporate Development and S151 advised that PSPS did have its own external auditors as well, Duncan and Toplis.

The Chairman thanked KPMG for their report.

RESOLVED:

That the report be noted.