Agenda item
Brent Council Statement of Accounts 2011/12 and Annual Governance Reports
Minutes:
Andrea White (Audit Commission) advised that there were two Annual Governance Reports (AGRs) before the committee; the London Borough of Brent Audit 2011/12 and the Brent Pension Fund Audit 2011/12; an updated version of the former had been tabled for the committee’s information. The AGRs were produced by the council’s external auditors, the Audit Commission, following the completion of the audit of accounts. The reports sought to highlight changes to the accounts, unadjusted mis-statements or material weaknesses in controls that had been identified during the audit process.
Turning first to the London Borough of Brent Audit, Andrea White highlighted that the key message of the report was that the council had made significant progress against the recommendations made in the 2010/11 AGR and there had been considerable improvement to the council’s year-end financial control and closure process. There had been a high number of mainly presentational errors made, however, and whilst these had not been fundamental to the main statements within the accounts, further improvements to the closure processes should be made for 2012/13. One non-material uncertainty had been identified in relation to the council’s intent to implement componentisation accounting; however officers had estimated that the maximum possible error equated to £3.5 million in the council’s balance sheets and the council’s cash position and usable reserves would not be impacted. The council had undertaken to review the error and implement componentisation accounting. Andrea White explained that it was her intention to conclude that the council had secured value for money in the use of resources and added that there was sound financial management in place. There would be more pressure to achieve further savings in the immediate future and it was recommended that members continue to monitor financial performance closely to ensure that the council achieved its short and medium term financial plans. It was expected that the formal opinion would be issued on 28 September 2012 and that the Council’s accounts would be certified by 5 October 2012.
Martin Searle (Audit Commission) advised that subject to the final audit closure and review processes, and receipt of the letter of management representation, the District Auditor intended to issue an unqualified opinion on the financial statements by 30 September 2012. There had been one material error identified, which had been the misclassification of £84.3 million Other Housing Services Income and Expenditure. The statements had been amended and there was no impact on the total Cost of Services or the balance sheet. With reference to Table 1 set out in the AGR, Martin Searle highlighted some of the key findings, against the risks identified in the 2012 Audit Plan. In particular, it was noted that the council needed to be alert to its reliance on a small number of finance staff who had experience in technical areas and it would be important for the council to maintain sufficient capacity to facilitate the efficient preparation of future statements. Other findings which had arisen from the audit included that related party disclosures were in line with requirements of the code, although it was noted that declarations were not received from one councillor; and that the anti-fraud document, whilst comprehensive and informative, needed to be updated to reinforce the council’s stance against the perpetration of fraud. The committee’s attention was particularly drawn to several areas on which it was recommended to form a view; these included identifying posts that were high risk in terms of fraud and corruption, and the identification of balances within the council’s accounting records that were more susceptible to fraud.
Martin Searle further advised that it had been recognised that the council had successfully managed the financial pressures in 2011/12 to deliver its services within the budget and contribute the planned £2.5 million to its General Fund reserve. Current progress against the budget in 2012/13 indicated cost pressures of £2.2 million against a budget requirement of £263 million. The council was confident that the overspend would be managed and was forecasting that the budget would be met. For 2013/14 and beyond financial projections took into account the local impact of reforms to benefits funding and non-domestic rates.
Members’ attention was subsequently drawn to the Brent Pension Fund Audit 2011/12 AGR which had also been considered by the Brent Pension Fund Sub-Committee on 25 September 2012. Andrea White advised that the financial statements of the Brent Pension Fund were consistent with the Pension Fund statements audited. It was anticipated that an unqualified opinion would be issued by 30 September 2012. The accounts had been completed by the due date and were supported by good working papers and audit trails. Two key weaknesses had been identified in the course of the audit; an internal control weakness over general ledger journals and the concentration of pension fund and investment knowledge. Controls over journals were found to not be operating effectively throughout the full financial year. Out of a sample of 20 journals tested by Internal Audit during the year, 4 were both prepared and authorised by the same officer which raised the risk that erroneous or unauthorised amounts could be input into the general ledger. As a result, detailed testing on all material year end journals were carried out to obtain sufficient assurance over their validity. Secondly, it became apparent that the knowledge of the fund and its investments was largely concentrated in one key member of staff, the former Head of Exchequer who had retired. Other pension fund staff lacked sufficient overall knowledge and understanding of the Council’s investments and how they are reflected in the accounts to answer audit queries quickly and efficiently. Consequently, the completion of the audit took longer than anticipated. Despite these weaknesses, there had been few errors and queries raised during the course of the audit.
Mick Bowden then provided a brief overview of the statement of accounts. With reference to the comprehensive income and expenditure statement, he clarified that whilst the housing revenue accounts (HRA) settlement and capital grants had to be listed as income in this document, they did not reflect funds available for revenue spending. Furthermore, turning to the balance sheet, the committee was advised that this had to include negative reserves and this meant, for example, that the pension fund deficit was listed under ‘other long term liabilities. Usable reserves related equated to reserves available to the council, whereas unusable reserves included monies such as the pension fund.
The Chair sought further details regarding the increase in school reserves. Mick Bowden advised that the funds for the previous standards regime, which had since ended, had been rolled into the schools general reserves.
RESOLVED: -
i. that the adjustments made to the accounts referred to in the London Borough of Brent Audit 2011/12 Annual Governance Report and the Brent Pension Fund Audit 2011/12 Annual Governance Report be noted.
ii. that the letters of representation to the Audit Commission be approved.
iii. that the Council’s response to the action plan be agreed.
iv. that an update on the implementation of the recommendations set out in the London Borough of Brent Audit 2011/12 Annual Governance Report be provided to the committee at its next meeting.
Supporting documents:
- 2 - audit_cttee_agr_report, item 6. PDF 69 KB
- 2 - app1_agr_council, item 6. PDF 359 KB
- 2 - app2_agr_pf, item 6. PDF 320 KB
- 2 - app3_statement_of_accounts, item 6. PDF 4 MB