Agenda item

The Head of Finance requested that item 11 Audit of Financial Statements Report 2020/2021 be included in this item.

The Assistant Head of Finance stated that their colleague Mark Howcroft (Assistant Head of Finance) would go through the presentation 7b to give an overview of the accounts. The Audit Wales Manager from Audit Wales would go through the ISA260 report which was Audit Wales view on the accounts.

Then to conclude item 7 would be returned to as the report showed the teams responses to the issues identified within the ISA260 report and a list of misstatements that were identified and corrected.

Main Points

·       The Assistant Head of Finance stated that the presentation explained the summary position as the draft set of accounts were authorised for publication on the 2^ndJuly 2021 which was delayed due to Covid, and staff sickness. The necessary notices were published on the website explaining the reason for delay as required by the legislation. The accounts went on display to the public between 26 July 2021 and 20^th August 2021 with no responses received.

·       A separate paper referred to at the start of item 7 detailed the extent of queries raised in respect of the draft account presentations and this covered off the 4 points raised in the minutes of the last meeting by the Chair.

·       The final accounts reflected the amendments made during that exercise and in conjunction with the review by Audit Wales whose findings were detailed in the ISA260 report which was to be considered at the end of the presentation.

·       Audit Wales concluded that the accounts were a true and fair view.

·       The Committee were asked to approve the final accounts which would then result in them being certified by the Head of Finance and the Chair.

·       A new copy would be sent to the Acting Chair to be signed.

·       There were 5 key statements in the front half of the document that were the Council’s core document, and the income and expenditure captured all the revenue activities of the Council. The expenditure of funding analysis was important as members received management information during the year in terms of performance against the budget and this could be different to the comprehensive income and expenditure statement. It was explained that these technical documents included things like fixed asset movements etc, which was in the future of the quarterly monitoring, so that expenditure in funding analysis reconciled between the two documents.

·       The Movement in Reserves statement being the health of the organisation to deal with contingencies and unforeseen eventualities.

·       The Balance Sheet and fixed assets aspects was a key point as the Council had a lot of assets which auditors would look at because of the significance of the figures involved.

·       The Cash Flow statement showed the movements in cash and cash equivalents of the Authority during the year.

 

The key message was that there was an underspend of £40million as reported to Cabinet in June 2021 and this had not changed from the figure that was reported to the committee in July 2021. The causes were the same in terms of the extent of one-off receipts provided by Welsh Government, the underspend across all services in relation to the costs of general administration and service provision due to changes in working practices and not undertaking planned/normal services, as they were not required or unable to be carried out due to Covid response work being prioritised. It was also due to underspend on its general revenue contingency budget, council tax reduction scheme and council tax income.

·       The CIES shows a deficit on provision of services of £8.8m.

·       The Capital Spending programme had not changed since July 2021 and the out turn was a £26million spend and £7.1 million was carried forward into the current financial year.

·       The revenue underspend of £14million was moved into reserves at the end of the year and the reserve movement was net £21million, schools underspend of £8 million transferred to schools reserve which was an artificial position as towards the end of the financial year Welsh Government were providing schools with additional resourcing for schools maintenance etc.

·       The underspend of £14million was transferred to a series of reserves.

·       There was a usable reserve balance of £108million split between the council fund balance of £6.5 million, balances held by schools-£10 million and earmarked reserves. Of the £85 million, £42million was made up of the private finance initiative reserve and reflected the fact that there were ongoing liabilities.

·       There were receipts reserved whenever the Council sell anything, and that money was ring fenced into a particular reserve for use in future asset investment and forwarding schemes under the capital programme.

·       The Council was allowed to put money aside for loan liabilities where there were uncertainties over timing and amounts.

 

The Assistant Head of Finance concluded that it had been a challenging year and it was satisfactory to receive a true and fair judgement despite changes in personnel and a reduced team capacity. Covid continued to play a part in the accounts presentation in terms of potential complications as a lot of money was received late in the financial year in relation to Covid claims. Agency arrangements, where money and services were organised on behalf of Welsh Government involved showing those accounts in a different way.

·       There were also quite significant changes in the accounts presentation this year and as part of the fixed assets work the schools portfolio was revalued.

·       A point was picked up on that was raised by the auditors in terms of interest free loan presentations from Welsh Government and this arrangement had been revised and they were now compliant with simple acquirements.

·       In relation to interest free loans widened the use of fair value comparators to give the audience a more of an understanding of the financial liabilities the Council faced.

A new contingent asset was created to reflect those outstanding social care debt liabilities.

There was now amalgamated NCC and NPT pension transactions.

 

In relation to pension reporting changes there had been a decision by NCC members (Sept 20) to support NPT and its financial challenges. As a result of this Newport transport had shown its pension deficit liability within its accounts. The draft accounts were prepared on the basis that the detail of agreement was still to be struck, but provisions recognised a likely change in liability. There was a recognition that probably the liability of that arrangement would change and that was anticipated accordingly. During the Newport Transport.

audit, their auditors queried the admitted body status that Newport Transport had versus the original intention of the transfer agreement, and as there was already an appetite to help Newport Transport out financially, it was decided that the original agreement could be used in place of devising a new agreement. Therefore, pension entries have been consolidated.

 

There were some changes around where Newport Transport historically would have had the responsibility to pay the pension fund the contributions that were owned in respect of its members. That primary responsibility now falls to the Council and instead Newport Transport has a contractual liability to the Council to pay us for those costs.

It was also noted that there was an increased use of estimates.

 

Lessons Learned would be brought back to the January 2022 meeting as it was more pertinent to the next audit.

The Assistant Head of Finance requested members to view item 7a which was a response to the ISA260 report and Statement of Account authorisation.

Questions:

Councillor Jordan remarked on page 122 regarding the total expenditure where in 2021/2022 there was a significant jump from £26.2 million to £100.2million and £62 million The Assistant Head of Finance stated that this reflected the level of spend that was historically spent on capital and things like slippage have moved costs forward

Councillor Jordan commented on the Head of Finance certificate on page 127 and enquired on the term Newport City Group and the Assistant Head of Finance confirmed this was Newport City Council and Newport Transport.

Councillor Jordan commented on page 140 in relation to Stage 1 2020/2021 the number of complaints figure was 1,129 whereas in the Complaint Resolution Managers report the complaint number was 221.

The Chief Internal Auditor confirmed that this was information provided for 2020/2021 and if there was a difference this would be verified and confirmed for the committee.

Councillor Thomas commented on the pension issue in relation to Newport Bus and stated that they were satisfied that it had been resolved.

The Chair thanked the staff for all their hard work and asked whether there was any claw back of grants from Welsh Government.

The Head of Finance confirmed that there was no claw back. 

The Chief Internal Auditor clarified that in relation to the earlier question on the Annual Governance Statement 7.4 related to Freedom of Information Act requests rather than complaints and compliments and as they were separate items the figures were different.

Audit of Financial Statements Report 2020/2021

The Audit Wales Manager presented the report to the committee.

Main points

·       Audit Wales were proposing an unqualified audit opinion on the financial statements which was good news for Newport City Council.

·       There were material valuation uncertainties regarding the valuation of building assets and investment properties this year because of the Covid 19 pandemic.

·       In relation to the audit certificate an emphasis of matter paragraph was raised.

·       There have been several corrections made as a result of the audit process as set out in Appendix 3.

·       There were some uncorrected misstatements which the Council have not corrected in the final accounts in paragraph 15 which were minor in value.

·       In paragraph 18 there were 3 further matters: consolidation of Newport Transport Pension provision into the Newport Council single entity accounts.

·       This was a very technical exercise with a lot of work involved.

·       There was a review on Members Declaration of Interest, and it was flagged that out of 50 Members, 9 Members did not return any updated declarations of interest for the year.

·       There was a follow up on an issue raised last year on the testing of creditors in the account where a number of sample items were incorrectly accrued in the financial year and this year the level of testing was increased and there was one further item found which was incorrectly accrued.

 

The Audit Wales Manager stated that it was proposed to issue an unqualified opinion on this set of financial statements and thanks was given to all staff involved who were hugely committed to the task.

The Chair stated that when the Declarations of Interest were reported last year there was to be a template or procedure introduced that would help.

The Head of Finance stated that a procedure was introduced but it did not work and that Members who did not disclose their Declarations would be written to by the Head of Finance to remind them of the importance of submitting these declarations. Finance would be working with Democratic Services to encourage Members to complete both declarations of interest at the same time.

Statement of Accounts

The Assistant Head of Finance returned to Item 7 Statement of Accounts and introduced the covering report to the Committee.

Main Points:

·       Appendix A and Appendix B was the bulk of the report.

·       There was a section on initial lessons learned but a more detailed lessons learned would return to Committee in January 2022.

·       Appendix A referenced the impact of the pandemic which played a part in the teams ability to work through the accounts closure process and this manifested in resource impacts within the team.

·       The £40million underspend also added time to the process as it needed to be determined how this underspend would be allocated across the marked reserves.

·       There was a delay in the draft accounts however the Assistant Head of Finance gave thanks to the team who were able to complete the accounts with only a small delay.

·       In relation to corrections identified there were 16 areas identified but this was consistent with the previous years.

·       The uncorrected misstatements were detailed on page 93 and explanations were included as to why they occurred. Newport Transport Pension was due to timing differences between the accounts being produced in draft and the decision taken as to how the company would be supported.

·       The main reason for those misstatements not being corrected is due to the impact upon the general fund balance, and these amounts would have needed to be moved to ear marked reserves which wasn’t feasible. This was in Lessons Learned as to what could be done to address this next year.

·       In terms of Member declarations, of those that were received a number were not of sufficient quality. It was critical to have compliance and the members would be written to about this matter as previously mentioned.

·       In terms of corrected misstatements Finance have added comments as to why these have happened.

·       In Appendix A the Lessons Learned section there were 4 identified that needed to be reviewed: process for internal recharges, process for ear marked reserves approval and those that arise as part of the audit process, and these will be looked at to correct these misstatements.

·       In relation to Provisions there was technical understanding that needed to be improved.

The Assistant Head of Finance requested that the Committee give their authorisation and recommend approval of the accounts and therefore the Chair and the Head of Finance would be able to sign off the accounts and the Letter of Representation to be submitted to Audit Wales.

The Assistant Head of Finance explained that the Committee needed to take a vote on whether to approve the accounts to be signed off along with the Letter of Representation. This needed to be done electronically so a copy of the accounts would be sent out to Members to receive their approval of the accounts and the Letter of Representation and Members would need to provide their electronic signature.

If this could not be completed Members could send an email to say they approved the accounts in lieu of being able to sign the document in person.

This needed to be done as soon as possible as the accounts were to be reviewed and signed off by the Auditor General next Tuesday.

Agreed:

The Committee approved the accounts and agreed that an email was to be sent out to the Chair of the committee for their signature.