Agenda item

Joint Report of the Chief Fire Officer and Treasurer to the Fire Authority

Becky Smeathers, Head of Finance and Treasurer to the Fire Authority, presented the report which requests approval of the management representation letter to the external auditors. She introduced Helen Henshaw, Auditor from Ernst and Young LLP, who was in attendance to present the Auditor’s report and respond to questions from the Authority.

Highlighted points from the Executive Summary of the Auditor’s report and responses to Authority Members’ questions by Helen and Becky included:

(a)  it needs to be acknowledged that the small Finance Team at NFRS has done a very thorough job and worked well with Ernst and Young to get the report here today;

(b)  the executive summary sets out the impact of COVID-19 and the susceptibility risk and disclosure risks, including valuation, which has required further work including seeking assurance that the Service is in a secure financial position with adequate reserves that will be able to operate for 12 months from the date that the Accounts are signed, (as is the requirement);

(c)  this Audit was largely carried out virtually with remote meetings, shared screens and scanned documents, so social distancing restrictions have not had an impact on the ability to undertake the Audit;

(d)  since the report was issued, the majority of outstanding areas of further detailed consideration have been completed, including the expenditure and funding analysis. Where suggested adjustments or recommendations made by the Auditors have not been acted upon by management, generally due to their insignificant impact, these have been referenced in Section 4 of the Auditor’s report and do not alter the Audit Opinion;

(e)  the key points for Councillors to be most aware of are listed on page 24 and 25 of the Auditor’s report which identify the differences between the findings and those which have and haven’t been adjusted. Where unadjusted, it has been agreed that amendments would be immaterial and did not impact on the financial statements;

(f)  risks are considered in detail, including setting and compliance of indicators, overriding of controls, manipulation of outturn, none of which were identified, other than one transport related expenditure issue which was incorrectly recorded. The Firefighter’s pension scheme is identified as a significant risk due to the size of liability and level of uncertainty, but it was concluded that the liability is fairly stated;

(g)  initially there was one area which needed further attention regarding asset revaluation, but this has been completed with a revised value sum of £800k instead of £1.2m due to depreciation, which is reflected in the final document;

(h)  with regard to value for money risks, the move of NFRS Headquarters is identified as a potential for overspend, but the overall mitigation of risks is considered adequate and good governance has been followed;

(i)  monthly reconciliations in payroll and financial accounting systems have been suggested to prevent any roll-on discrepancies;

(j)  Appendix A to the report sets out the required communications from the External Auditor to those charged with governance. It was requested that further communications which the Authority feel could or should be included, should be forwarded to Helen Henshaw;

(k)  Members of the Authority made the following points, acknowledging that Helen Henshaw was the representative of Ernst and Young LLP and comments were not directed at her personally;

(l)  it is agreed that for so few people, the Finance Team has done an outstanding job and should be proud of their work which has resulted in an Unqualified Audit Opinion;

(m)it is disappointing that the presentation of the audit report has been delayed from a specifically arranged meeting in November;

(n)  it is also greatly disappointing on behalf of tax payers that the cost of the audit is more than three times higher than initially tendered, being awarded at £23,909, but with the final bill proposed as £87,814. A explanation with a full breakdown is requested;

(o)  the delay in presenting the Audit has caused a lot of inconvenience to staff. In Business, if the terms of an accepted contract are not met, sometimes it’s appropriate to seek a partial refund, not for the final cost to increase to this extent, which may impact on front line services. This increase is not acceptable, particularly as the provided accounts were in a good position;

(p)  it is acknowledged that a lot more work has gone into this audit than previous audits due to additional requirements, but whether this warranted the increase in price was questioned. An explanation from Central Government on the inaccuracy of the Public Sector Audit Appointment (PSAA) was requested.

Helen Henshaw responded:

  (i)  a breakdown of the fees is included on page 44 of the audit report, and it is acknowledged that they are significantly higher than the PSAA which was made 4-5 years ago, since then the requirements of Audit have increased, and more time and work is necessary to meet those requirements. The entire public sector audit profession are under extreme pressure with regard to the sustainability of the fees being allocated by the PSAA;

  (ii)  PSAA are undertaking a consultation with Auditors and the affected Authorities. They have asked Auditors where they feel the fee should be set and Ernst and Young have proposed a figure in the region of £70k due to the more detailed work required, and the need for any additional or specific one-off work to be taken into consideration, (as has occurred in this current year);

  (iii)  the £47K uplift in cost was communicated to the Authority, in the Audit Plan issued in  March 2020. It is believed that this was circulated to members but not formally presented to the Authority. The further estimated final charge is believed to be an additional £16,000 but is still to be determined once the work is complete, and is yet to receive approval;

  (iv)  NFRS does have contractual rights under PSAA contract and so there is an element of protection.

Police and Crime Commissioner, Paddy Tipping, stated that this is a national systems failure issue which is not extraordinary to NFRS in that the PSAA rates have put tendering firms in a difficult position. The PSAA are looking at the situation and an uplift in fees is expected in future years.

The Chair thanked Helen Henshaw for her attendance and presentation of the Auditor’s report.

An additional recommendation was proposed by the Chair, Councillor Michael Payne, and seconded by Councillor Andrew Brown, Lead Member for the opposition, regarding the Authority’s disappointment at the additional time taken and cost of the Audit.

Resolved:

(1)  to note the contents of the External Auditor’s ISA 260 report, attached as Appendix A to the report;

(2)  to record the Authority’s disappointment, both as to the length of time taken to receive the Auditor’s report and in respect to the disproportionate and unacceptable additional cost to be levied.