Agenda item

RESOLVED: That the Committee note the Auditors Annual Report presented by Ernst & Young

Audio recording – 4:02

Debbie Hanson, Ernst & Young, presented the External Auditors Annual Report 2020/21 and highlighted points including:

·         This report replaces what is previously known as the audit annual letter. It pulls together the finding of the audit work completed during the year. The key change within this report is that when the original audit results report was presented in March and June, there was no commentary on our value for money work. Now the only place you will find this is in this AAR report.

·         We still haven’t been able to issue the certificates on the audit. The NAO instructions have been issued on Whole of Government Accounts, but they are now requiring some additional procedures to be undertaken on a sample of local authorities below the threshold. Until these have been selected by the NAO we cannot say we have concluded all of our responsibilities. This has no significant impact on North Herts

·         Our value for money work was in three key areas: financial stability, governance, and the Councils arrangements for improving economy efficiency and effectiveness. We have concluded that all of the Councils arrangement for these areas was adequate and there was an unmodified report with no commentary in relation to any weaknesses

·         In relation to financial stability, the Council has a robust process to identify significant financial pressures both in the current year and future years. The Council has identified you’ll need to achieve savings to balance the budget by 2026/2027 and this means the Council may have to make some difficult decisions. We note that there is an established budget challenge process which will help the Council address those challenges

·         In relation to governance there is a risk management group that is well established in the Council. There is also an integrated budget setting process and the Council undertakes regular budget monitoring throughout the year

·         In relation to the Councils arrangements for improving economy efficiency and effectiveness, the budget challenge process is a key element. The Council also has a transformation programme which will be very important in delivering savings and improving the three E’s. The Council has performance indicators that it monitors that has been slightly impacted by covid-19 but these are still used. The Council had a peer review back in 2020 and an action plan is being developed to address the issues identified in that. The Council does work with a number of different partners and that is part of its strategy to improve economy efficiency and effectiveness

Councillor Terry Hone commented that he was pleased to see the unqualified opinion of the financial statements is there as there is a great concern that we are doing the right thing at North Herts Council, so he is happy the audit reflected positive results.

The following Independent Persons asked questions:

·         John Cannon

In response to questions, Debbie Hanson advised:

·         When undertaking work on financial statements, we engaged our own specialist valuer to look at a sample of assets in order to gain assurance that those assets were materially accurately valued. Overall our valuers concluded that the valuations provided by the Councils own valuers were within an acceptable range. However, we did note in terms of the land values, the Councils valuer used a value of 9,500 per acre, but our specialists concluded that it was quite a lot lower than the values we’d expect to see which would be somewhere in the range of 150,000-200,000. We did note that the building valuations were overstated due to different assumptions, therefore overall the asset values were within a reasonable range. We did calculate the potential impact of differences in land values on the financial statements and concluded that the maximum potential impact could be £1.1M difference on the land values. Therefore we were satisfied that there was no material impact, but we recommend that the Council does look at their evaluation approach to determine that they’re using the appropriate valuations for land and buildings. Overall there is no material impact and it is a judgemental difference rather than factual.

·         The pension deficit is not unusual, all local authorities will generally have a pension deficit.

Ian Couper also responded to questions:

·         We are required to have a triennial valuation of the pension deficit and we have one ongoing at the moment. This sets a contribution rate for us which is made up of a percentage of payroll to cover the accrued benefits of current staff and there is also a lump sum which is currently at around £1M to pay for the deficit on people who have retired. These numbers are set based on a 20 year time horizon to get back to being fully funded. In addition we are required to have an annual interim valuation from the actuaries to go in to the Statement of Accounts. At the moment it is possible that the actual percentage amount we contribute will maybe go down slightly based on previous performance and it is possible that the lump sum will stay the same. Based on this there is a long term plan to get us back to being fully funded, but there are huge ups and downs between the years.

·         We had a number of actions coming out of the peer review. A number of these were put in place and some were longer term actions. We will go back and have a look at the plan and make sure we have an update on it.

Debbie Hanson also introduced Rachel Merez who is taking over as the Audit Manager for the current year audits.

The Chair thanked Debbie Hanson for presenting and welcomed Rachel Merez

It was:

RESOLVED: That the Committee note the Auditors Annual Report presented by Ernst & Young