Agenda item

Management Team Items - Report of the Deputy Chief Executive & Monitoring Officer - A.7 - External Audit delays causing delays to the publication of certified Accounts for 2022/23

Meeting of Cabinet, Friday, 21st July, 2023 10.30 am (Item 27.)

To inform Members of a breach of a statutory reporting deadline along with the associated circumstances and the actions being taken in response.

Decision:

RESOLVED that -

a) the Monitoring Officer’s report and the response of the Council’s Statutory Officers including the Section 151 Officer’s aim to publish the 2022/23 Statement of Accounts by the 31 July 2023 and start the period of public inspection as soon as possible thereafter be endorsed;

b) it is noted that this report will be presented to the next meeting of Full Council;

c) the matter set out in this report be included within the Annual Governance Statement 2023, which will reviewed by the Audit Committee as part of their work programme;

d) Officers be requested to provide an update to the next meeting of Cabinet in October 2023;

e) Officers continue to work with partners and all relevant organisations to support a satisfactory resolution to the ongoing External Audit delays;

f) the Chief Executive be requested to write to the Chief Executive of this Council’s External Auditor to express Cabinet’s regret at the on-going audit delays; and

g) the Council’s Finance Team be thanked for working to their continuing high standards, particularly given the current difficult circumstances with audit delays.

Minutes:

Members were informed of a breach of a statutory reporting deadline along with the associated circumstances and the actions being taken in response.

Cabinet considered a report of the Monitoring Officer issued under Section 5 of the Local Government and Housing Act 1989 to formally inform Members that the Council had, for reasons beyond its control, failed to publish its certified draft accounts for the 2022/23 financial year by the statutory deadline of 1 June 2023. The Council was required by law to consider this report and decide what action (if any) to take in response. This report was being presented to Cabinet and it would also be presented to Full Council in due course.

Members were informed that the Chief Executive and the Assistant Director (Finance and IT) & Section 151 Officer had both been consulted on this report, as required by the legislation.

Cabinet was advised that, under Section 5A of the Local Government and Housing Act 1989, it was a duty of a relevant authority’s Monitoring Officer to prepare a report, if it at any time appeared to them that any proposal, decision or omission by the authority, by any committee, or sub-committee of the authority, by any person holding any office or employment under the authority or by any joint committee on which the authority were represented constituted, had given rise to, or was likely to, or would give rise to —

(a) a contravention by the authority, by any committee, or sub-committee of the authority, by any person holding any office or employment under the authority or by any such joint committee of any enactment or rule of law or of any code of practice made or approved by or under any enactment; or

(b) any such maladministration or failure as is mentioned in Part 3 of the Local Government Act 1974 (Local Commissioners).

Members were made aware that the Accounts and Audit Regulations 2015 required Local Authorities in England to publish unaudited but certified Statement of Accounts in order to enable a 30-day period for the exercise of the public right to inspect those accounts, with that period covering the first 10 days of June.

Before that period started, the Council had to publish its draft accounts and a certificate by the Section 151 Officer confirming that they were satisfied that the Statement of Accounts presented a true and fair view of —

(a) the financial position of the authority at the end of the relevant financial year; and

(b) that authority’s income and expenditure for that financial year.

Therefore, the failure to start the period for the exercise of public rights placed the Council in breach of its statutory duty under regulation 15 of the Accounts and Audit Regulations 2015. This has led to the Council having to place a notice on its website to explain the breach and it had led to this report.

Cabinet was reminded that the Council’s current External Auditors had been appointed by Public Sector Audit Appointments Limited (PSAA), a company established by the Local Government Association to collectively procure auditors without authorities having to go through the extremely technical and legally complex statutory process of appointing their own auditor. This meant that only PSAA could remove / replace this Council’s auditor. The Council had raised the continuing external audit delays with the Department for Levelling Up, Housing and Communities (DLUHC), PSAA, CIPFA and the FRC. At the present time, Local Authorities were waiting for the Government to make an announcement on their proposals to resolve this worsening national issue.

Members were aware that the Council’s Statement of Accounts for previous years (2020/21 and 2021/22), at the present time, remained subject to being ‘signed off’ by the Council’s External Auditor. The backlog of audits was a national issue which was estimated to reach 1,000 across the country by the end of 2023 and the current situation had been described as a crisis in the External Audit of Local Authorities that risked escalating even further without urgent and decisive action by the Government. The Monitoring Officer understood that the Government remained committed to exploring options in response to this national issue. The delays highlighted above were a well-publicised issue and in no way reflected any wrong doing by those Councils adversely affected.

In terms of the ‘sign-off’ of the 2020/21 accounts, the External Auditor had confirmed that they would not be able to formally complete this process until September 2023 at the earliest. At the present time it was unknown when they would be able to commence the audit of the 2021/22 accounts.

Although the external audit delays did not necessarily prevent the Section 151 Officer from certifying and publishing the accounts for 2022/23, given that there were now two years of accounts still waiting to be ‘signed off’ by the External Auditor, it did start to significantly compromise the ability to do so.

The Monitoring Officer understood from the Council’s Section 151 Officer that:

• the delays in the external audit of the accounts highlighted above had also had direct and secondary impacts on the ability for Councils to meet the 31 May publication deadline for 2022/23;

• in terms of the direct impact, a number of issues relating to 2020/21 and 2021/22 remained subject to the external audit process, and based on current information it was very likely that a number of figures in the 2020/21 and/or 2021/22 accounts would be subject to amendment with the potential ‘knock-on’ impact in 2022/23. It was also important to highlight that some financial balances from 2021/22, that would need to be brought forward into the 2022/23 accounts were also likely to change;

• in terms of the secondary impact, the Council was still working with the External Auditor on the 2020/21 accounts which in turn had had an adverse impact on the capacity of Officers in preparing the 2022/23 accounts;

• taking the above into account, the Council had taken the difficult but pragmatic decision to delay the publication of its 2022/23 accounts;

• the Council would endeavour to publish its certified accounts and commence the required period of public inspection as soon as possible, with the scheduled date being the end of July 2023;

• the proposed delay should not impact on the ability for the public to inspect the Council’s accounts or to raise questions directly with its External Auditor. However, it was acknowledged that any delay was undesirable and the rights became less meaningful and relevant as the delay lengthened;

• the Council’s decision to delay the publication of the accounts should be seen as a practical response to matters outside of its control, rather than a reflection on the Council’s important financial stewardship role. However, to provide additional assurance in the interim period, the External Auditor had provided a positive Draft Audit Completion Report for 2020/21 which had been considered by the Council’s Audit Committee in March 2023, with no significant weakness identified to date in terms of the Council’s use of resources.

In respect of the 5th bullet point above, it was recognised that the 2020/21 accounts would not be signed off until September 2023 at the earliest. However, the impact from the continuing External Delays needed to be balanced with the need for the Council to be able to adequately demonstrate its financial stewardship and governance role, which included the right of the public to inspect the certified accounts in a timely manner.

With the above in mind it was proposed to certify and publish the 2022/23 accounts as soon as possible regardless of the 2020/21 accounts not being potentially signed off until the end of September 2023 and the 2021/22 accounts remaining subject to the external audit process.

In this regard the Council’s Section 151 Officer had confirmed:

• they were able to certify that the 2022/23 provided a true and fair view of the Council’s financial position given this largely reflected the confirmation that the accounts had been prepared in accordance with the associated code of practice and that the financial transactions had been recorded and presented correctly;

• the Council was aware of the external audit issues still outstanding for 2020/21, which were not expected to have a material impact on the 2022/23 position;

• the accounts were published ‘subject to audit’;

• the 2021/22 certified Draft Statement of Accounts were certified for publication ahead of the 2020/21 accounts being ‘signed-off’ by the External Auditor;

• the Narrative Statement within the Statement of Accounts would highlight the External Auditor delays for prior years’ accounts and the risk of the potential impact on the 2022/23 position;

• the Annual Governance Statement would highlight the need to publish this Section 5A report.

It was noted that our current auditor’s engagement as the Council’s auditor ended with the audit of the 2022/23 accounts. The Council had appointed KPMG as its External Auditor for the 2023/24 financial year. However, it was unlikely that KPMG would be able to commence its audit until the Council’s current auditors had completed their work. It was further noted that the Council’s current auditors were understood to have withdrawn from Local Government audit work, at least for the short term.

In order to formally receive the Section 5 report from the Council’s Monitoring Officer and to recommend its contents and response onto Full Council:-

It was moved by Councillor M E Stephenson, seconded by Councillor I J Henderson and:-