Reading Borough Council’s 2016/17 accounts have arrived at their final destination

Beam me up Scottie!

Reading Borough Council’s (RBC) statement of accounts for the year ended 31 March 2017 were signed off by the auditors Ernst & Young (EY) on 19 July. The RBC audit and governance committee on 23 July was informed of the completion of the tortuous and frustrating process that the audit had become. EY’s audit results report sets out numerous failings in the accounts which mean that the audit report has been qualified.

Statement of accounts

The audit report states that EY are giving a ‘qualified opinion’ because they were unable to find sufficient evidence to form an opinion on some areas of RBC finances [ref 1]:

In our opinion the financial statements:

  • give a true and fair view of the financial position of Reading Borough Council and Group as at 31 March 2017 and of its expenditure and income for the year then ended, except for the following areas: short-term creditors; short-term debtors; comprehensive income and expenditure statement; and IAS 19 [pension] scheme assets
  • have been prepared properly in accordance with the CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom 2016/17.

The audit results report is a doom-laden travel diary of what EY set out to do, what they found after they started, and why they became stranded and took so long to make the journey home.

This has also been an expensive trip with lots of added extras which did not come with the basic package; these included additional specialists who were experts on technical accounting and private finance initiatives (PFI).

The focus on PFI arose during the course of the audit and was an unplanned and prolonged detour. It was first mentioned at the audit and governance committee on 17 April 2018 along with the need to undertake a valuation of RBC properties. This came as a surprise to the (then) leader of the council, Jo Lovelock. At that time they still hoped to sign off the accounts in May 2018.

EY say that the accounts presented to them at the beginning of the audit were of poor quality and, because they found errors, they had to change their audit strategy to find alternative evidence to substantiate transactions and balances in the financial records. Ultimately, they could not find sufficient evidence in all cases and so formed a qualified audit opinion.

An auditor opinion that is qualified is never a good thing but a qualification for ‘limitation of scope’ is not as bad as an adverse opinion which would mean that ‘the financial statements as a whole were misleading or incomplete’ [ref 2].

Because of significant issues on the audit, EY undertook an internal engagement quality and compliance review and changed their senior manager.

The audit results report lists adjustments that were made to the draft financial statements in considerable detail as well as the reasons for them e.g. classification errors, incorrect calculations and incorrect entries made in the accounts.

Value for money

EY are also required to report on ‘value for money’ which is whether the council has “proper arrangements to secure economy, efficiency and effectiveness in its use of resources”. This is measured against three criteria relating to arrangements to:

  • take informed decisions,
  • deploy resources in a sustainable manner,
  • work with partners and other third parties.

For the previous year ended 31 March 2016 they formed an adverse value for money opinion and they did so again for 31 March 2017.

They found that financial and performance information was not always accurate or reliable and that the some financial controls, such as bank reconciliations and procedures for journal entries, were not working as expected. They concluded that this did not support informed decision making.

In relation to sustainable resource deployment, EY said that there had been some improvement since they issued section 24 written recommendations in February 2017. However, savings planned in 2016/17 had not been delivered and reserves had been used to balance the budget and were expected to be used again in 2017/18. They also referred to the Ofsted reports into children’s services during the audited period which later resulted in the formation of Brighter Futures for Children (BFfC).

The final audit bill is unknown

The audit and governance committee learned that the basic fee for the audit was £108,938 and by the end of 2018 estimated additional costs were £300,000, making a total of least £408,938. The valuation work which had been commissioned had cost £27,000.

Some good news might be that RBC are hoping that Public Sector Audit Appointments (PSAA), the body responsible for appointing local authority auditors, will not charge a contribution to their overheads on the total audit fee.

There is more to come…

There has been a knock-on delay to the timetables for the accounts for the years ended 31 March 2018 and 31 March 2019.

2017/18 accounts were expected to be available for public inspection in the week commencing 29 July 2019 for a period of six weeks, and after that the 2018/19 accounts would be available. At the 23 July meeting, officers said that the former were not yet fully checked.

So Mr Lovejoy waits yet again down on London Street for his bumper summer holiday edition of RBC accounts.

Mr Lovejoy’s bookshop on London Street, now occupied by RISC


Links
  1. Audit & governance committee 23 July 2019 papers & webcast
  2. Statement of accounts 2016/17
  3. Local authority accounts: a guide to your rights (NAO)
  4. 30 April has the audit been completed?
  5. Auditors finally deliver report on council finances
  6. The best we can do
  7. The end of the financial year – would Mr Lovjeoy approve?
  8. Ofsted reports into Reading Borough Council
References

Categories of adverse audit opinion

i. Qualified ‘except for’ opinion – limitation of scope

The financial statements give a true and fair view, except for the effect of a matter where the auditor was unable to obtain sufficient evidence. For example, the auditor considers the accounting records for a material transaction or balance in the accounts to be inadequate.

ii. Qualified ‘except for’ opinion – disagreement
The financial statements give a true and fair view, except for the effect of a matter where there was a material disagreement between the auditor and audited body about how the matter was treated in the financial statements.

iii. Adverse opinion
There was a disagreement that was so material, or pervasive, the financial statements as a whole were misleading or incomplete.

iv. Disclaimer of opinion
The auditor was not able to express an opinion, because they could not obtain evidence to such an extent that the financial statements as a whole could be misleading or incomplete.

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One thought on “Reading Borough Council’s 2016/17 accounts have arrived at their final destination

  1. Pingback: Reading’s Transport Strategy 2036 Consultation comes to south Reading | The Whitley Pump

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