The Deputy Chief Executive/Director of Finance presented the Committee with the Annual Governance Report (AGR).  The report summarised the findings from the 2010/11 audit which was substantially complete.  It included the messages arising from the audit of the financial statements and the results of the work the District Auditor had undertaken to assess the Council’s arrangements to secure value for money in its use of resources.

The District Auditor circulated his draft report as at 22 September 2011 of his qualified Value for Money Conclusion and reported that the paragraph in the ‘basis for qualification’ in the draft AGR had not changed very much and not at all in the message.  The actual conclusion was still ‘with the exception of the matter reported in the basis for qualified conclusion, that he was satisfied that in all significant respects the Council had put in place proper arrangements’.  What had changed was the ‘report by exception’.  In the draft AGR the District Auditor had a high level message referring to governance and internal control weaknesses.  On the advice of his technical section, he had been far more explicit and made specific reference to the key issues, including the two independent reports.

The basis for the qualified conclusion was that, in considering the Council’s arrangements for challenging how it secured economy, efficiency and effectiveness, the District Auditor had identified that the Council was not able to provide information on activity and performance of the Highways and Engineering Services Procurement Exercise (HESPE) contract to determine whether it was receiving better value for money spent.  He had concluded that, having regard to guidance on the specified criteria published by the Audit Commission in October 2010, with the exception of the matter reported in the basis for qualified conclusion, he was satisfied that in all significant respects the Council had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2011.

The Audit Commission’s guidance also required the District Auditor to report, by exception, on any other significant additional matters that came to his attention and which he considered to be relevant to proper arrangements to secure economy, efficiency and effectiveness in the use of resources.  Such matters had come to his attention relating to significant weaknesses in:

·  Promoting and demonstrating the principles and values of good governance

The District Auditor had identified that the Council’s Constitution required updating and the current Contract Procedural Rules had not been followed for term contracts.  Also, an independent review of bullying and harassment made a number of significant criticisms of individual officers and collective behaviour within and across the whole Council and another independent review had concluded that Wirral Council’s corporate governance arrangements were, and probably remained, inadequate.  Without good governance, risks increased and priorities might not be achieved.

·  Managing risks and maintaining a sound system of internal control

The District Auditor had identified weaknesses in corporate arrangements for risk management, policies, procedures and internal control arising from whistleblowing concerns.  There were also significant weaknesses in internal control in respect of assets which had continued for a number of years.  Without sound arrangements risks could not be managed to a reasonable level and resources may not be used effectively to deliver value for money.

The District Auditor also circulated an addendum to page 36 of the AGR that served to update Members by providing a summary of his findings.  He reported that he was awaiting information that he needed to review before he could confirm that he could give an unqualified opinion on the Council’s accounts.  He informed that he may not be able to give the certificate of completion of audit.

The District Auditor referred to the Financial Statements at page 36 of the Committee’s agenda in respect of outstanding issues and provided an update on the position with each one.  He also referred to the Council’s Property, Plant and Equipment Assets disclosed on the face of the Comprehensive Income and Expenditure Statements and informed that the latest position was that the figure had gone up from £9.5m to £15.975m.  The revaluation element relating to the PFI schemes of £5.163m had been separated out and disclosed on a new line with the result that the figure had gone up.

The Council had explained that the amount of £15,975m was made up of £4.5m correctly relating to asset revaluation and £11.4m of incorrectly accounted for capital grants and the impact was that both this line and service line income were overstated (and therefore cancelled each other out, with no overall effect on the bottom line).  Officers had analysed £5.4m of the incorrect balance and were planning to make an adjustment for this.  This left the remaining £6m as an unadjusted error which could impact on any of the service level income lines.

The Committee was informed that Officers were providing the District Auditor with working papers to support their amendments and their explanation for the unadjusted error which he would need to review.  At this stage, he was considering giving the Council an unqualified opinion with an explanatory paragraph or ‘emphasis of matters’ (the financial statements were affected by significant uncertainties (about which it was either not possible to, or, would not be reasonable to obtain sufficient appropriate audit evidence) and the matter was disclosed adequately).

The District Auditor reported that he still intended to give a qualified value for money conclusion and the wording of the draft had been updated and circulated to Members.  He also informed that he had that day received two notices of objections to the accounts that he would need to consider before he could give the certificate of completion of the audit in the Auditor’s Report.  The District Auditor also reported that if he gave the opinion but needed to delay his certificate he was required to also re-assess and re-issue the opinion and value for money conclusion at the time of giving the certificate.

Consequently, Members were asked to consider how they would review and approve the final changes to the Statement of Accounts and the final Letter of Representation.

The Deputy Chief Executive/Director of Finance informed that this year, for the very first time, the accounts had been prepared in accordance with the International Financial Reporting Standard and this had been a learning curve and time consuming and the situation had been further exacerbated because a number of accountants had left the Council through voluntary severance or voluntary early retirement.  He considered that having gone through the process this year staff would have the experience behind them making them better able to cope with compiling the Council’s 2011/12 Accounts.  Work was in hand on all matters raised and the District Auditor was confident that the statutory deadline of 30 September 2011 would be met.

Members were very concerned by what they had been told by the District Auditor and regarded it as extraordinary.  The Deputy Chief Executive/Director of Finance informed that the problem, in part, was a resource issue.  However, Members were aware of the same issues being raised in previous years and were not sure that it could be put down to lack of resources.  However, if the issues could be addressed through resources they were prepared to do it.  The Deputy Chief Executive/Director of Finance agreed to see what could be done process wise and come back to the Committee with a further report.

The Committee deliberated the serious issues raised by the District Auditor at length and it was:

RESOLVED: That

(1)  authority be delegated to the Deputy Chief Executive/Director of Finance, in consultation with the Chair, to sign off the Action Plan; and

(2)  the Deputy Chief Executive/Director of Finance be requested to review his Department’s processes and bring a report to a future meeting setting out what can be done to bring about improvements so that the Council’s Account are compiled in future without the problems experienced this year.