Agenda item

4.1       There had been circulated copies of the Audit Scotland Scottish Borders Council annual report and associated covering letters.  The report explained that the external auditors’ work on the 2021-22 annual accounts was substantially complete and subject to the satisfactory conclusion of any outstanding matters and receipt of a revised set of annual accounts for final review, Audit Scotland anticipated being able to issue a modified but unqualified audit opinion in the independent auditor's report on 24 November 2022.  Members discussed the timing of the paper’s submission to the committee.  Ms Woolman apologised for the late submission of the paper to the meeting, however the report had not been scheduled to be submitted for September 2022.  Prior to the Covid-19 pandemic, the audited annual accounts were usually concluded by 20 September each year.  An agreement had been reached with the Scottish Government that the revised deadline for audited annual accounts would be 30 November and Audit Scotland were delighted that the paper was submitted in time for a meeting of Scottish Borders Council on 24 November for approval of the accounts.  The date of the meeting was changed in light of difficulties that encountered during the audit.  Ms Woolman recognised that finance team and audit team had worked very well together in partnership in preparation of the unaudited and audited accounts.

4.2       Ms Woolman highlighted in paragraph 5 of the report that there were no unadjusted misstatements yet to be corrected.  Furthermore, in presenting the report to the Audit Committee, confirmation was sought from those charged with governance of any instances of any actual, suspected or alleged fraud, any subsequent events that have occurred since the date of the financial statements, or material non-compliance with laws and regulations affecting the entity that should be brought to the attention of the external auditors.  Normally Audit Scotland are kept informed of those matters during their liaison with officers.  A letter of representation from the Acting Chief Financial Officer was further sought, which was regarded as standard at the conclusion of an audit.  Ms Woolman confirmed that the external auditors gave an unqualified audit opinion on the annual accounts.  Furthermore, in the opinion of the external auditor, the financial statements gave a true and fair view in accordance with applicable law and the 2021-22 Code of the state of affairs of the Council and its group as at 31 March 2022 and of the income and expenditure of the Council and its group for the year then ended.  Ms Woolman presented a summary of the annual audit report for members.  Audit Scotland were positive that management sought additional expertise regarding the valuation of land and buildings which resulted in a significant upward revaluation of assets.  Related to common good fund assets, Council officers had been diligent in recognising that assets constructed on common good land be identified as belonging to the common good, and where assets were used constantly by the Council, it was more appropriate for them to be recognised as finance leases in the Council’s balance sheets.  These adjustments were made to Audit Scotland’s satisfaction.  With regards to transaction of Covid-19 grants, these were incorrectly included within the 2021-22 comprehensive income and expenditure statement as Scottish Borders Council was acting as agent on behalf of the Scottish Government.  This was an administrative error and appropriate adjustments had been made to ensure that the income and expenditure were not materially mis-stated.

4.3       A number of questions were raised on the annual accounts.  Close attention was paid to what was reported in Management Commentary and supporting evidence.  The audit opinion covered the Management Commentary and that a correct balance was made in terms of backward and forward view.  Audit Scotland tested that the Management Commentary was able to act as a standalone document.  Testing was not made on detailed function as this would ordinarily be the role of Internal Audit; however Audit Scotland would assess whether appropriate internal arrangements were made to look into it.  Mr Whalley asked for Council to be aware that Audit Committee did not receive enough time to review the report in detail, however the verbal report from the external auditors was reassuring.  With regards to International Accounting Standard (IAS) 19 employee benefits and the impact on SBc Contracts, Ms Woolman explained that in the balance sheet of Scottish Borders Council, there was an IAS 19 liability related to the difference between assets and liabilities of pension fund as pertained to employees of Council.  SBc Contracts own IAS 19 liability was contained within the Council overall liability.  The Acting Chief Financial Officer explained that SBc Contracts delivered an operating surplus however there was a requirement to make technical statutory adjustments related to IAS 19.  The pension adjustment valued all future pension liabilities if pension payments were made at present.  The Acting Chief Executive advised that SBc Contracts had previously been classified as a direct labour organisation (DLO), and when the relevant legislation lapsed SBc Contracts was then reclassified as a significant trading organisation.  This meant that it needed to be accounted related to IAS 19.  SBc Contracts was performing more work internally and whether being a significant trading organisation was still relevant.

MEMBER

During discussion of the item, Councillor Douglas left the meeting.

4.4       The Acting Chief Financial Officer explained that external turnover of SBc Contracts increased from £2.1 million to £5.1 million from 2020-21 to 2021-22 which was likely due to restrictions in ability for SBc Contracts to do external work during 2020-21.  The Acting Chief Financial Officer confirmed that the Chief Legal Officer would be the responsible officer for Follow-up of Prior Year Recommendations Action 2 Assets on Common Good Land.  The Chief Officer Audit and Risk recommended that, with regards to Follow-up of Prior Year Recommendations Action 7 Best Value Action Plan, the Chair recommended to Council that Audit Committee would continue to scrutinise progress toward full completion of actions.

4.5       Ms Woolman confirmed that it was the final meeting for the external audit team, and extended thanks to finance officers, internal auditors and wider officer teams that have assisted Audit Scotland with their audit.  The chair thanked Ms Woolman and the external auditors for the work on the audit.

DECISION

NOTED the Annual Reports from the Council’s External Auditors prior to Council approval.