Report of the City Treasurer.
5.1 Nikki Parsons (Pension Fund Officer) introduced the report and stated that the Accounts and Audit Regulations 2015 set out the requirements for local authorities to produce an annual statement of accounts, including their pension fund accounts. She advised that the Council had submitted its accounts for external audit on 9th April 2016, the earliest public sector accounts ever issued. This achievement meant that the Council had exceeded the performance of 94% of the FTSE 100 listed companies, whilst most local government bodies took around three months to complete their accounts. Nikki Parsons informed Members that the accounts were due to be reported to the Audit and Performance Committee on 12th May 2016. She added that the accounts which had previously been externally audited by KPMG, were being audited by Grant Thornton this year.
5.2 The Board then heard from Geoffrey Banister (Grant Thornton), who provided an update on progress on the external audit. He drew Members’ attention to the Audit Plan which included standard audit risks, auditing of the new ledger and other risks. The audit plan had been substantially completed and following completion an interim audit statement would be produced, followed by a final statement. Geoffrey Banister circulated a draft statement of findings to the Board and he advised that no material errors had been identified to date, and so therefore no adjustments had been proposed. The findings were largely positive, with only a very minor class change and recommendations to strengthen some internal controls proposed in an otherwise sound statement of accounts. Geoffrey Banister added that the speed with which the accounts had been submitted was impressive, however due to Government regulations, the accounts could not be signed off until 15th July 2016. He thanked the Pensions and Treasury Service for their assistance in ensuring that the audit had gone smoothly.
5.3 George Bruce (Tri-Borough Director of Treasury and Pensions) added that the external audit had proved more rigorous than in previous years and all recommendations made by the auditor had been accepted. This included reviewing policy in respect of pension payments for those domiciled abroad and the Council was working closely with Western Union on this matter. In respect of the recommendation concerning journals, these had been undertaken as an interim measure and would not be required to be repeated.
5.4 During Members’ discussions, it was queried whether the manual interventions required during reconciliation had fully met the audit requirements. In respect of internal controls, clarification was sought on management expenses and investment income not being recorded on the Agresso ledger. A Member requested an explanation as to how figures of £9.891m and £484K had been arrived at for overall materiality and triviality respectively and a description of what was involved in a ‘walk through’.
5.5 Members welcomed the speed at which the accounts had been completed for audit and acknowledged the effort undertaken to achieve this, despite the issues around Agresso. However, it was queried whether there had been any additional costs incurred to help the early completion. Members sought further information in respect of typical fraud cases identified, including those involving ex-domiciles and what steps were taken where there had been overpayments to a scheme member who had since died.
5.6 In reply to issues raised by Members, Nikki Parsons confirmed that the manual reconciliations complied with audit requirements and there had been a clear balance by the end of the financial year. She confirmed that no additional costs had been incurred in completing the accounts so promptly. George Bruce advised that although management expenses and investment income had been recorded, they had been incorrectly classified and so they had been accordingly re-categorised. Members noted that there were specific processes in place in respect of suspected overpayments to scheme members who had since died and this involved initial contact with the family concerned and court action was available to the Council to recover any costs should this be necessary
5.7 Geoffrey Banister advised that a standard fee of £21,000 was set to undertake an external audit of the accounts and additional charges would only be incurred if the external auditor had to carry out additional work due to apparent discrepancies in the accounts. He advised that no such additional work was necessary in this case. Geoffrey Banister advised that some large scale frauds in respect of payment pensions are uncovered by organisations from time to time. In order to prevent future fraud, tests are designed to identify where there may be a reasonable expectation of fraud. However, where there is staff collusion, fraud would be more difficult to identify. Trevor Webster (Senior Human Resources Manager) added that the Agresso system provided different staff with different levels of authority which meant staff collusion would be much more difficult in the case of the Council.