Agenda item - Ernst & Young Annual Audit Letter

Report of Ernst & Young (copy attached).

1)            That the Committee note the 2015/16 Annual Audit Letter

47.1      The Committee considered a report of Ernst & Young that set out their Annual Audit Letter for 2015/16.

47.2      Diane Bushell asked for further information on the assessment of management override of controls.

47.3      Paul King stated that this related to the ability by management to manipulate management controls directly or indirectly and prepare fraudulent statements by overriding controls that could appear to be operating effectively. As part of this assessment, Ernst & Young would analyse journals kept by the senior finance team for the year as a whole and after an event for specific descriptions, testing accounting estimates for any scope of inherent bias particularly in relation to appeals on non-domestic rates and property, plant and equipment hire (PPE).

47.4      Councillor Sykes asked what type of risk auditors were looking for when assessing Minimum Revenue Provision (MRP).

47.5      Paul King clarified that this was an assessment of why the council made any changes in the provision for capital expenditure and whether the council complied with statutory guidance in this area.

47.6      Councillor Sykes enquired whether local authorities could increase their leverage by reducing their MRP.

47.7      The Head of Internal Audit explained that MRP related to how local authorities charge current and historic capital financing costs relating to capital programme spend to their revenue accounts. The timeframe of repayment can vary, for example depending on the average life of capital assets of the local authority. The council has effectively extended the period over which this will be charged to the revenue account to more closely reflect asset lives thereby reducing the annual charge. However, the financing will still be repaid eventually.

47.8      Councillor Druitt noted that the issuing of the Audit Certificate had been delayed pending the resolution of an objection to the accounts for 2015/16 in relation to Lender Option Borrower Option loans and enquired whether there was a timeframe or deadline for resolution.

47.9      Paul King stated that the target for resolution was set at 9 months by the Public Sector Audit Appointments Limited (PSAA) but it was hoped that the objection would be settled before that deadline. It was necessary to have a correct balance between considering the objection and the work required to do so but Ernst & Young were mindful of the need to follow due process and reaching a fair outcome for all parties. Paul King supplemented that there was also an option to challenge any decision made that may extend the timeframe for resolution.

47.10   RESOLVED- That the Committee note the 2015/16 Annual Audit Letter.