This report presents two reports from the Council’s external auditors (Grant Thornton UK LLP)
· The final 2019-20 Audit Findings Report for the Council’s accounts, including recommendations and management responses
· An External Audit Plan for the financial year 2020-21
This report also presents an updated set of audited 2019-20 statement of accounts, including the 2019-20 Pension Fund accounts. The report sets out the key changes between the audited 2019-20 accounts, and the version last presented to this committee on 20 July 2023.
The Audit and Governance Committee is recommended to:
1. Delegate authority to the Section 151 Officer in consultation with the Chair of Audit and Governance Committee to sign the 2019-20 Council accounts, including Pension Fund accounts (Appendix 2)
2. Delegate authority to the Section 151 Officer in consultation with the Chair of Audit and Governance Committee to sign the letters of representation to Grant Thornton LLP for the Council and Pension Fund
3. Note the 2019-20 Audit Findings Report for London Borough of Croydon and recommendations made (Appendix 1)
4. Note the External Audit Plan for 2020-21 (Appendix 3)
Minutes:
Jane West, Section 151 Officer introduced the 2019/20 Accounts and External Auditor report to the Committee. There had been further amendments since the Committee received draft reporting in July 2023 the details of which were included in the reports.
The completion of the 2019/20 Financial Accounts provided clarity on Croydon’s financial position and formed a base from which the council could continue the process of completing subsequent years’ financial statements. It was noted the council still did not have any general reserves. As part of the council tax setting the council’s request to the Department for Levelling up, Housing and Communities (DLUHC) to undertake further capitalisation direction for £9.4 million had been agreed, to enable completion of the final corrections in relation to the contractor dispute.
The council had received a ‘Disclaimer’ External Audit opinion for the accounts due to the outstanding police investigation. There was some final work to be done with Grant Thornton to sign off the accounts and receive certification.
Sarah Ironmonger, Grant Thornton provided the Committee with a summary of the report. The final adjustment equated to £200 million of additional expenditure in the 2019/20 accounts. Grant Thornton had issued a ‘Disclaimer’ opinion due to the ongoing police investigations following the RIPI 2 and Kroll reports, and the unknown outcomes of this investigation. It was noted that a ‘Disclaimer’ opinion was a rare occurrence and was undesirable to the council.
The ‘Emphasis of Matter’ section of the report drew attention to where valuations with material uncertainties had been included in the council’s accounts due to the lack of an observable market during the Covid-19 pandemic lockdown. The inclusion of this had been standard audit practice across local authorities. The ‘Adverse’ audit opinion regarding value for money and the completion of statutory duties were also included.
The Committee queried the impact of the ‘Disclaimer’ opinion on future accounts. Grant Thornton advised the expectation was that a ‘Disclaimer’ opinion was also likely for the 2020/21 accounts due to the matters under police investigation continuing into the 2020/21 financial year. Whether these factors had gone away would be considered and if so, the ‘Disclaimer’ opinion would only appear on the opening balances for 2021/22. Therefore it was anticipated that 2022/23 would be the first year to be considered with ‘clean opinion’. It was usual practice for a ‘Disclaimer’ opinion to take three years to clear in this manner.
Cllr Jason Cummings, Cabinet Member for Finance commented on the significance of the completion of the 2019/20 accounts. It was expected to take several years to reach a normal cycle of reporting for the council’s accounts whilst subsequent years were completed. The judgements included in the External Auditor’s report had been anticipated and were not expected to have a significant impact. The efforts and input to reach the completion of the 2019/20 was noted and thanks were given to those involved. The importance of completing 2019/20 to enable the council’s completion of subsequent years’ accounts to provide assurance on the council’s finances was reiterated.
In response to questions from the Committee, Grant Thornton confirmed the ‘Emphasis of Matter’ had also applied to pension funds due to the same uncertainty about valuations.
The Committee queried the value of the journals relating to the statement included on page 20 of the report which cited officers having posted journals without rationale or explanation. It was advised the value of these had been significant, relating to the technical accounting of Croydon Affordable Homes. There had been rationale for the journals, however this had been complicated and was not understood by officers. It was noted the journal policy had been reissued to ensure officers kept correct records.
The Committee queried if there would be a broader impact of the ‘Disclaimer’ opinion, for example whether it would prevent the council for applying for grant funding or carrying out certain activities. Officers advised it was a rare occurrence and was therefore hard to know the implications. Not having signed off accounts had already had implications with contractors, partners and government departments who had requested sight of the council’s accounts. The completion of the 2019/20 accounts was an improvement to that position and it was hoped this would lessen any adverse implications.
It was noted that Item 8. Financial Statements 2020/21 was included at Item 7. Financial Statements 2019/20 – External Audit Findings Report, Appendix 3.
Paul Dossett, Grant Thornton introduced the report for the Committee and explained the Government’s consultation on proposals to introduce a backstop for local authority audited accounts. The proposals would introduce a framework to ensure all existing accounts were signed off by 30 September 2024 and the Government guidance would require auditors to disclaim, qualify or sign off all previous sets of accounts by this date. The Government’s intention was to bring local authority accounts and auditing up to date. The potential introduction of government imposed statutory disclaimers was noted. There were ongoing discussions about the plans working in practice, for example the work required by external auditors to start from a disclaimed position on opening balances for the 2023/24 accounts.
Croydon’s special circumstances and therefore what would be in the public interest regarding the completion of its accounts in full, was under consideration. With the proposed deadline only 6 months away it would be impossible for the 3 years outstanding accounts to be completed by this date. Grant Thornton appreciated the public interest in the completion of the subsequent year’s audits in a thorough and normal way, to provide assurance to residents and members. However, the approach taken for Croydon would be a Government decision.
It was advised that the Value for Money (VFM) external audit work was complete up to 2022/23. The 2022/23 report was expected at the April meeting of the Committee. The Committee noted this item had been deferred to the April meeting with the agreement of the Independent Chair.
It was noted the council’s response to the Government consultation had been circulated to members.
Cllr Cummings advised it was essential for the council to have full and comprehensive understanding with external opinion and judgement of all the previous year’s finances. Beyond the accounting, issues from those years were regularly referred to both politically and by residents. Having an independent and external view on those years would provide clarity for staff and residents providing surety and lessons learned.
Katherine Kerswell, Chief Executive advised that the independent external auditing of local government expenditure was extremely important due to council’s position as locally democratically accountable public bodies. The council needed to regain the trust and confidence of the people of Croydon and the completion of its audited accounts would be a fundamental part of this.
The council had made a special request to the National Audit Office (NAO) and had discussed the exemption for other local authorities where there were serious issues such as in Croydon.
The completion of the council’s accounts was included the council’s Improvement and Assurance Panel (IAP) Exit Strategy and if an extension were granted this would require review.
The Committee queried the value of starting an external audit process but not achieving completion due to the backstop and receiving a ‘Disclaimer’ opinion. Officers noted there was serious concern regarding unaudited accounts. Croydon in collaboration with the IAP and Grant Thornton had written to Government explaining the council’s position and the requirement to complete auditing of the accounts.
In response to questions from the Committee, Grant Thornton advised the auditing of 2020/21’s accounts would be completed before the backstop date. However for the financial years 2021/22 and 2022/23 it would take approximately 6 months per audit and even with an extension this would likely run against the subsequent year’s backstop. Croydon would likely be required to be given extensions until 2025/26.
The Committee thanked officers for the well expressed letter to Government and advised of its support for its contents. The importance of completing all accounts for Croydon was reiterated and it was suggested that if a small proportion of councils were granted exemptions this would not have any significant impact.
Officers expressed their gratitude to Sarah Ironmonger for her work at Croydon.
The Committee RESOLVED, to:
1. Delegate authority to the Section 151 Officer in consultation with the Chair of Audit and Governance Committee to sign the 2019-20 Council accounts, including Pension Fund accounts (Appendix 2)
2. Delegate authority to the Section 151 Officer in consultation with the Chair of Audit and Governance Committee to sign the letters of representation to Grant Thornton LLP for the Council and Pension Fund
3. Note the 2019-20 Audiat Findings Report for London Borough of Croydon and recommendations made (Appendix 1) 2.4 Note the External Audit Plan for 2020-21 (Appendix 3)
Supporting documents: