The report and appendices are attached.
Jim McLarnon (Grant Thornton) introduced the external auditor’s Progress Report stating that, while it was Grant Thornton’s intention to deliver its audit findings by the deadline of 30 September 2021, it was evident by the end of July 2021 that this would not be possible. He apologised for the delay, stating that progress had been impeded by the impact of COVID-19 leading to delays of other public sector audits which preceded that of WCC and Warwickshire Pension Fund. This had been discussed with WCC management in July 2021 and a revised timetable had been agreed for audit completion by October 2021. He provided assurance that the Council would still be able to meet its statutory duty to publish its accounts by 30 September 2021 provided draft accounts were published on-line alongside a note stating that the audit had been delayed.
Jim McLarnon reported that, in recognition of regulatory changes which required Grant Thornton to undertake a more detailed assessment of value for money arrangements, a revised deadline had been set for certification of work in this area. Resources would be focused on the delivery of opinions on the financial statements; the extended deadline for value for money assessment would be no more than three months after the date of the opinion on the financial statements. He advised that audit findings would be reported to the Audit and Standards Committee at the meeting in November 2021. The Auditor’s Annual Report, including a commentary on arrangements to secure value for money, would coincide with the anticipated date for audit sign-off in December 2021.
The Chair stated that the agreement for delivery of audit findings had been reached on an understanding that Grant Thornton was adequately resourced to complete the work.
In response to the Chair, Ciaran McLaughlin (Grant Thornton) advised that Grant Thornton had recruited intensively over a three-year period, including appointment of graduate trainees. He stated that the firm was among the largest employers of Chartered Institute of Public Finance and Accountancy (CIPFA) qualified personnel nationally. However, he advised that there was a shortage of individuals with the requisite skills to undertake public sector audit work. This was an acknowledged problem affecting suppliers across the market.
Ciaran McLaughlin advised that Grant Thornton had benchmarked its offer to prospective employees against other firms in the sector to ensure that it was competitive within the recruitment market.
The Chair requested that the Committee’s concerns be raised with the external auditor’s Regional Director. He recognised the challenges faced by the engagement team, stating that ultimate accountability for the failure to meet agreed deadlines rested with the Regional Director.
Councillor Birdi highlighted the potential reputational damage to the Council caused by the delay. He emphasised the importance of preventing any reoccurrence of a failure to meet agreed deadlines. He suggested that contractual arrangements be revised to this aim; a punitive element for non-delivery of agreed outcomes could provide a means to incentivise improved performance.
Councillor Gifford emphasised the importance of conveying a message to Warwickshire residents that the failure to publish audited accounts on schedule was not attributable to WCC personnel. He stated that it was surprising that Grant Thornton had not demonstrated a greater awareness of the risk of non-delivery at an earlier stage.
Andrew Felton (Assistant Director, Finance) stated that officers had a good working relationship with the external auditor’s engagement team; efforts had been made to mitigate the impact of a potential delay resulting from wider circumstances. He emphasised that blame should not be placed on Grant Thornton personnel working directly with the Authority.
Rob Powell (Strategic Director for Resources) stated that the Finance Team had completed its work on schedule to a very high standard. He advised that a strongly worded letter had been sent to Grant Thornton expressing the Council’s disappointment. However, there was a need to accept present circumstances; the external auditor was subject to genuine difficulties affecting availability of resources. He advised that this was a national, systemic problem within the public sector audit market. Many other local authorities had experienced similar delays. It was hoped that reforms to the national system would provide improved stability.
Councillor Horner highlighted the longstanding issues affecting resourcing within the audit sector. These predated the emergence of COVID-19. He suggested that an opportunity to consider the matter in detail could be presented if the Council resolved to join the national scheme for auditor appointments.
Attention was given to other areas covered by the Progress Report. Jim McLarnon stated that there were no areas of concern; however, he highlighted the adjustment identified in Level 3 investments within the Pension Fund. This would result in an adjustment to Pension Fund accounts with some impact on the accounts of the County Council and second tier authorities in the region due to the need to issue a revised valuation of pension fund liabilities. He emphasised that this was a timing issue; it was not indicative of a fundamental control weakness within the Pension Fund.
In response to the Chair, Andrew Felton advised that Level 3 investments constituted just under 10% of the total Pension Fund. He stated that within the last quarter an increase of around £50 million had been observed in Level 3 investments. This was a positive outcome.
That the Committee:
a) Notes the progress on the Audit of the 2020/21 Statement of Accounts and the External Auditor’s Progress Report and Sector Update; and
b) Notes the proposed wording on the reason for the delay to the publication of the accounts with an audit opinion to be used on the Council’s website, which will be finalised by the Strategic Director for Resources in line with statutory requirements.