Agenda item

Officers had submitted a report advising the Committee of the progress to date in preparing for the closure of the 2016/17 Accounts.

As previously advised the statutory deadline for having the accounts available for audit had been brought forward. Furthermore, the amount of time available to the auditors to complete their assurance work was being reduced by a third. The changes are summarised below.

The Committee were advised that in order to speed up the year-end closedown process, it would be necessary to introduce a greater level of estimation to finalise the year end position. This might apply to a number of activities but would certainly include requesting data earlier from external partners relating to:

·                     The valuation of  Assets including Property Plant and Equipment, and Infrastructure assets to determine for example, impairment charges; and

·                     The valuation of year end pension liabilities from Pension Fund actuaries.

Preparations for earlier closure had commenced in 2015/16 by bringing forward timetable deadlines for Services. With exceptions, Services had achieved the earlier deadlines; in particular, schools data had been consolidated into the accounts ahead of the timetable, and the Pension Fund accounts had been available by the end of May.

As previously reported this gain had been lost due to:

·                   the launch of the finance transformation review in April 2016 which had led to resources being re-directed to that process at key points in the closedown programme, and

·                   a delay in the Capital closedown programme as a consequence of additional testing requirements associated with an upgrade in the Asset Register and staff vacancies in the capital accounting team. Capital remained the most complex year end procedure and had a major impact on the financial statements.

Officers advised that in addition to bringing forward the timetable, there were a number of further risks arising from the need to embed recent Service reviews.

Finance had undergone a major restructure involving staff from Bexley, Havering and Newham Councils.  The new structure had been completed in December 2016 and went live on 9^th January 2017. Interim arrangements were being implemented to cover posts currently not filled. Closure of the 2016/17 accounts was being managed by the interim oneSource Chief Accountant across the three authorities reporting to the Head of Finance (Financial Control and Corporate Business Systems) and handover arrangements were in place to support the preparation of the 2016/17 accounts.

The auditors, Ernst and Young, were aware of the changes in management structure, and would be meeting with both the outgoing Head of Corporate Finance, and Head of Finance as part of handover arrangements.

The Collection Fund impacted on all of the prime statements. In 2015/16 there had been a delay in receiving NNDR data and if other deadlines could be met for 2016/17, any delay in the availability of Collection Fund data could have a detrimental impact on the critical path.

The Committee were advised of other issues which could have an effect. The first was the fact that Ernst & Young were auditors for both Havering and Newham and would be asked to harmonise audit processes across both boroughs where possible, particularly since both boroughs now operate the same instance of 1 Oracle, and share support staff for common transactional services. 

It had been intended that, from 1^st April 2016, local authorities would be required to include Highways Infrastructure on their balance sheets at an estimate of the current cost, as opposed to the depreciated balance of past expenditure as at present. This had now been deferred pending confirmation by CIPFA LASAAC, but was anticipated to be in financial year 2017/18.

The change would have a very major impact on the value of net assets reported for all authorities, but would have no impact on usable resources or the council tax requirement. Infrastructure assets had now been valued on the required basis and the related data had been used to provide the Government with information required in Whole of Government Accounts.

The 'Telling the Story' review introduced a new note to the Code, the expenditure and funding analysis, which aimed to provide a direct and accessible reconciliation between the way local authorities were funded and prepare their budget and the comprehensive income and expenditure statement. Local authorities were now required to report their comprehensive income and expenditure statement on the same basis as they were organised rather than in accordance with the Service Reporting Code of Practice (SeRCOP).  This would include the restatement of prior year figures for the purposes of comparison.

          With the setting up of Havering’s wholly owned subsidiary - Mercury Land Holdings Ltd - it would be necessary to complete group accounts for 2016/17. This should not be a major issue for 2016/17 due to limited operations. However, as Mercury Land Holdings expanded its activities it would become a significant consolidation risk in the future. Additional allocation had been built into the timetable to allow necessary review process for the group consolidation activity.

Ernst and Young had presented their Annual Audit Letter to Audit Committee on 29 November 2016. The purpose of the Letter was to communicate to Members and external stakeholders, including members of the public, the key issues arising from their work which they considered should be brought to the attention of the Council.

The issues identified as requiring attention had included:

·     The valuation of investment property and property, plant and equipment

The Council had not assessed whether there had been any significant movement in the valuation of council dwellings between the valuation date of 1 April 2015 and the balance sheet date of 31 March 2016. Additional work had been undertaken by the valuer, which had identified that there had been an upward movement in values of around 10%. As a result, it had been estimated that the value for council dwellings in the accounts had been understated by £44 million. The accounts had been amended to reflect this updated valuation.

·     The medium term financial plan and key assumptions

Work was ongoing to address the budget gaps in 2017/18 and 2018/19, whilst maintaining reserves at the Council’s recommended minimum levels. The Council had established a process for the identification of savings and income generation proposals for 2017/18 and 2018/19, but would need to consider its approach towards the identification of savings in 2019/20 and beyond. This was being addressed as part of the budget strategy for 2017/18 and beyond.

·     Written Instructions to Valuers

The Council had used an internal valuer to undertake the valuation of certain property assets in 2015/16, but had not issued formal instructions. This had been addressed in closing the 2016/17 accounts to ensure that valuation work was undertaken in accordance with relevant guidance and statutory requirements.

·     Social Care System Reconciliations

When testing expenditure, the auditors had noted that the transactions recorded in adult social care system had not been reconciled to the general ledger. They had noted that the Council had now addressed this issue and reconciliations of transaction data to the general ledger in relation to adult social care had commenced in 2016/17.

The Committee noted the report.