Agenda item

The Head of Financial Management Gary Adams gave a presentation on the report. He explained it would cover the areas of change, future changes, the main statements, the annual governance statement and audit findings.  The main change was in response to the Redmond Review which had extended deadlines for the 2020-21 and 2021-22 accounts.  Future changes to IFRS16 accounting for leases were delayed until 2022-23 due to resourcing and Covid. 

As regards the main statements, the main changes in expenditure and income were related to the impacts of Covid.  The Original estimate of Covid pressures (before any government funding) was £42m, with significant impacts on Heritage, Parking and Commercial Estate Income. In response, a Financial Recovery report was approved by Cabinet including recovery measures of £20.7m, of which £14.8m was delivered in full.  Government grant funding of nearly £12m was received in respect of general Covid Support and £17.7m from the Sales, Fees and Charges income compensation grant.  Other specific Covid grants came to £14m and the Council also distributed Covid Business Support grants totalling £69m during the financial year. The capital spend was £62m which represented 63% of budget, primarily reflecting the delivery time to complete projects requiring re-phasing of budgets to future financial years.

In respect of the Movement in Reserves Statement, it showed a net transfer of £55m to earmarked reserves. This included a technical accounting adjustment in respect of s31 Business Rate Retail Relief Compensation Grant of £39m to offset the Collection Fund deficit that accrued from granting these reliefs in year as well as transfers of some Covid funding for use in 2022/23. There was a decrease in Unusable Reserves of £132m, relating to statutory accounting movements which included £42m in respect of the Business Rate Collection Fund, £38m increase in future Pensions Liabilities and £47m of capital accounting movements relating to valuation changes.

He explained the key balance sheet movement, including: –

• Land and Buildings value reduction of £5m
• Assets Under Construction increase of £13m
• Investment Properties reduction of £48m, due to revaluation loses
• Long-Term Debtors reduction of £6.5m
• Short-Term Debtors increase of £30m
• Reserves Movements in line with the Movement in Reserves Statement

The Cashflow Statement showed the level of cash and cash equivalents had increased by £26m, reflecting the maturity profile of investments held at 31^st March 2021. 

The Collection Fund Statement showed a deficit on Business Rates of £42m, mainly due to the accounting impacts of the Retail Relief granted to businesses due to Covid and a small surplus on Council Tax of £0.2m.

It was the second year that Group Accounts had been produced to incorporate Aequus, the Council’s owned housing company.  The impact of income and expenditure and consolidated movement in reserves showed a net increase in Aequus’ reserves of £3.1m, taking their reserves to £3.2m.

The Annual Governance Statement came to this Committee so that Corporate Audit could oversee the process.  The Council Leader and Chief Executive had reviewed and signed the statement.  In outline, there were no failings but there were significant risks with the Covid pandemic – these included the impact on public health, the local economy, financial/organisational resilience, safeguarding and democracy.

During questions the following issues were raised:

·  In response to a question from Councillor Andy Furse about fraud in respect of business grants, it was stated that 0.3% of the total amount of grant funding issued to businesses was subject to recovery action and some of that had already been recovered

·  A question was asked in respect of the unspent Covid grants balance of £4.85m which had gone to reserves, whether this was in effect profit.  It was stated that this was not a profit, the funding was transferred to reserves so it was available to fund pressures in 2021/22.

·  A question was asked on what the level of reserves would be this year. The level of reserves would depend on actual specific use during the year, but it was highlighted that the £39m increase due to 2020/21 Business Rate Retail Relief grant treatment was used in 2021/22 to offset the Collection Fund deficit.

·  Following a question from Councillor Colin Blackburn, the statement that  Commercial Estate income was down 42% but this was only a snapshot in time, what is the movement over 5 years?  The Section 151 Officer explained income had been impacted in 2020-21 and the 2021-22 budget had been rebased to align the budget with the forecast position for future years.  Bounce back to pre-Covid income levels will take some time, this is not anticipated before 2025.  There would be a period of uncertainty now with the new variant, however there has been a good level of market interest on the Estate.  Andrea Frow Property Services envisaged a rebalancing of rents over the next few years and she could foresee levels stabilising not growing.  It was agreed that a 5 year view of these figures would be useful.

·  It was helpful for Councillors to see the trends (Councillor Mark Elliott)

·  John Barker (Independent Member) stated that the purpose of the Annual Governance Statement was to look back over the last year so it would be appropriate to record that the Committee recognised best endeavours

·  In response to Councillor Lucy Hodge, it was explained that there two main types of Covid grants – one was ring-fenced and conditions on what money could be spent on were specifically set out by Government, non ring-fenced grants were for services under pressure and could be bid for.

Peter Barber (Grant Thornton external auditors) explained that progress on the audit was impacted by resourcing issues.  The Pension Fund audit was now completed, and the Council’s was well progressed.  Subject to approval at this Committee, unqualified opinions would be issued on both the Council and the Pension Fund accounts, he highlighted that the timeline had improved since last year.  He outlined that no material errors had been identified that impact on the outturn position and that the Council accounts were complex with the large number of investment properties.

In respect of the Council’s Audit Findings Report, he highlighted the following two areas which were included in the Action plan following issues identified during the audit.

For the Group Accounts, Aequus’ accounts had been consolidated into the Council accounts.  The CIPFA Accounting Code of Practice requires that the valuation of the company’s investment properties are carried out by a qualified valuer each year. This requirement would be put in place for future years and further testing by the auditors had confirmed that there was not a material difference arising from the 2020/21 valuation treatment.  The impact of ADL operating under commercial principles and the valuation of properties was explained.

In respect of the valuation of land and buildings, an adjustment was required in relation to 7 assets due to the double counting of componentised assets, and 2 assets had been included on the valuation report where no valuation had been undertaken.

One updated page was circulated to the Committee, Section C Audit Adjustments.

The following updates were provided, including in relation to further audit work that had completed since the draft Audit Finding’s report in respect of the Council’s Accounts had been issued:

·  Journals were an important area, all had been completed and there were no further findings

·  The pension fund was complete with no issues arising

·  Minimum Revenue Provision (MRP) – this was calculated every year and had previously been below materiality.  Some councils had calculated this incorrectly.  B&NES MRP calculation had been reviewed and it fairly reflects the position of the Council

·  Expectation that Council services would continue to be delivered over the next 12 months so the Council was a going concern

·  An area of focus was the valuation of property, plant and equipment as B&NES has a large asset base

In response to a question from Councillor Elliott on the timing of signing off next year’s accounts, Peter Barber explained that the statutory deadline was September 2022. He reported that, in relation to the 2020/21 accounts, only 9% of audits were completed by the September date and it would again be incredibly challenging to meet these timescales. The aspiration was to improve on this year’s date.

The External Auditor moved on to the Pension Fund Accounts audit and reported that the accounts had been presented earlier and good progress was made.  There were no material errors and a small number of narrative clarifications were recommended in respect of the estimation and uncertainty notes to the accounts.

The Service Director – Commercial and Governance, Jeff Wring explained that VFM was a new process and was well under way with a deadline for it to be completed by mid March 2022.  The report would be shared with this Committee for information and consideration but did not require Committee approval.

RESOLVED that

1)  the issues contained within the Audit Findings Reports for the Council and Avon Pension Fund are noted; and

2)  the audited Statement of Accounts, including the Letters of Representation for both Bath & North East Somerset Council and the Avon Pension Fund for 2020/21, are approved.