Agenda item

The Key Audit Partner from Grant Thornton presented the external audit backstop report and in doing so reminded Members that the backstop date for all audit years up to and including 2022-23 financial year was 13^th December 2024. The External Auditor reported that the Council’s Accounts for 2020-21 and 2021-22 had been published in draft in sufficient time for the statutory public inspection period to be concluded before the 13^th December 2024 backstop date. This meant that the External Auditor was able to backstop the draft accounts for the years 2020-21 and 2021-22 and issue opinion on those accounts.

The Council had published its draft Accounts for 2022-23 on 2^nd December 2024. The statutory public inspection period would therefore be concluded in January 2025 and the External Auditor would not be able to issue the backstop audit opinion for this set of accounts until after that time. It was stated that, subject to discussion at this meeting, and provided no additional work was required, the opinion on 2022-23 would be issued by the External Auditor in January.

It was summarised that the External Auditor had not been able to complete the audit of the Council’s Accounts for years 2020-21 to 2022-23 before the 13^th December backstop deadline. To allow the Council to publish the accounts for those years in line with the legislation, the External Auditor would be issuing a backstop disclaimer opinion for 2020-21 and 2021-22 Accounts, and pending the conclusion of the public inspection period, also issue a backstop disclaimer opinion for the Council’s 2022-23 Accounts.

It was explained that the backstop disclaimer opinion meant the External Auditor had been unable to complete work and to give assurance over the Council’s financial statements for the years 2020-21 to 2022-23, due to time constraints imposed by statute, namely the backstop date of 13^th December.

The External Auditor reminded the Committee that Appendix D to the report contained the recapitulation on the Value for Money work for Redditch Council that the External Auditor had undertaken over the last two years.

The Committee received an update regarding the proposed fee set by Public Sector Audit Appointments (PSAA) for work undertaken on the Council’s financial statements and other audit work carried out for years 2020-21 to 2022-23. The actual proposed fee for auditing 2022-23 accounts was marked as to be confirmed after the public inspection period for that year’s set of accounts had finished.

The other fees associated with work of the External Auditor were also set out in Appendix D to the report. It was noted that due to audits of accounts not being completed, some of the fees charged for the other work including audit of housing benefits grants and housing capital receipts were higher than those for accounts audit work. Normally, this would create a potential independence threat for the External Auditor in that the fee charged for non-accounts based audit was disproportionate to that charged for audit of accounts. Due to the fact that the backstop date was imposed nationally and the audit work on the two grants was administered by the Government and completed under Government instructions, the National Audit Office (NAO) did not consider the work on grant claims to count under the non-audit fee cap. Therefore, the External Auditor was satisfied that this work did not represent a threat to independence.

Members enquired about the definition of ‘backstop disclaimer opinion’ that the Council was to receive on its statements of accounts for 2020-21 and 2021-22 (and 2022-23 after the public consultation period). The External Auditor explained that disclaimer opinion meant that an auditor had no assurance over financial statements, over figures in the accounts. In this case, because of the backstop date introduced by statute, this was due to the fact that there was insufficient time for the audit of any of the Council’s three statements of accounts to take place prior to the backstop date of 13^th December – by which date backstop disclaimer opinions had to be issued to audited bodies who could not produce accounts and had them audited by this point in time.

It was further noted that the External Auditor could also issue a qualified ‘except for’ opinion which meant that auditors had completed and were satisfied with the accounts except for certain areas where the auditor was not able to give assurance. There was finally an unqualified opinion which meant that the auditor was able to give assurance over an entire set of accounts. This was the opinion that the Council received for its last set of audited accounts, for the financial year 2019-20.

It was commented that in normal circumstances, it was rare for auditors to issue disclaimer opinions but due to the situation nationally with the backlog in unaudited local authority statements of accounts, the Government expected that hundreds of backstop disclaimer opinions would be issued to local authorities across England. In response to a question, it was clarified that disclaimer opinions were final and not subject to change.

A question was asked as to when the situation with the auditing of the Council’s accounts would be back to normal and the Council up to date with the audits of its accounts. It was responded by the External Auditor that any authority issued with a backstop disclaimer opinion was likely to also receive a certain type of qualified opinion for a further two to three financial years. As the Council had no audited statements of accounts for the years 2020-21, 2021-22 and 2022-23, the incoming auditor for 2023-24 accounts had no source of assurance over the opening position for those accounts; significant work was required on the part of any auditor from 2023-24 financial year to undertake testing of in-year transactions and year end balances to gain limited assurance in the absence of opening position.

There was also a likelihood of qualified opinion in 2024-25 due to similar question marks over comparative numbers in those accounts. The audit sector guidance issued by the National Audit Office (NAO) and the Financial Reporting Council (FRC) predicted a potential three-year minimum timescale to get back to normal type of audit opinion for audited bodies issued with backstop disclaimer opinion. It was highlighted that to gain audit assurance over the level of usable reserves, all in-year transactions had to be audited and it was not clear at this point how assurance was going to be provided over the non-audited transactions. It was still uncertain what the rules would be for having to go back over previously unaudited accounts. It was highlighted that a further complicating factor for the Council was that during the period for which accounts had not been audited, there was a large amount of Government covid-related grants that affected the Council’s reserves position. Questions also remained over the impact of any potential local government sector reorganisation.

A question was asked regarding the implications for the Council of receiving the backstop disclaimer opinions. It was explained that due to backlog across public bodies audit sector, the majority of local authorities had some form of qualified opinion for some of their recent statements of accounts, whereas only a few percent of councils would have been in this position four to five years previously. There was now lack of audit assurance around billions of pounds of expenditure across the public sector, which was concerning in terms of public confidence. It was highlighted, however, that the Council submitted monthly and quarterly returns to the Government for all types of services which meant that there was still continual assurance over most of the Council’s operations. The disclaimer opinion was also likely to have reputational impact on the local authority.

It was highlighted in relation to the disclaimer opinions that there was a specific concern for the Council as it operated a trading company, Rubicon Leisure, which was audited under the regular company’s act as a private company. Due to the Council’s disclaimer opinions, Rubicon Leisure was not able to put assurance over the parent company guarantee which had affected their credit rating.

The Portfolio Holder for Finance was invited to address the Committee and in doing so he commented that the present situation in terms of the backlog across the public body auditing sector could be traced to the abolition of the Audit Commission as this had led to progressive reduction in audit capacity within the local authority sector.

RECOMMENDED that

1)    The “Disclaimer Opinion” from the External Auditors for the 2020/21 Accounts is accepted.

2)    The “Disclaimer Opinion” from the External Auditors for the 2021/22 Accounts is accepted.

3)    The “Disclaimer Opinion” from the External Auditors for the 2022/23 Accounts is accepted pending the completion of the Public Inspection Period.

4)    The “Redditch Borough Council: Conclusion of the audit for 2020/21, 2021/22 and 2022/23 – letter to those charged with governance on the application of the local authority backstop” is understood, accepted and approved.