The Annual Audit Letter for Wigan Council Year ended 31 March 2017 October 2017 Mike Thomas Engagement Lead T 0161 214 6368 E Mike.Thomas@uk.gt.com Neil Krajew ski Engagement Manager T 0161 234 6371 E Neil.p.Krajewski@uk.gt.com Richard Z Tembo Assistant Manager T 0161 234 6352 E Richard.Z.Tembo@uk.gt.com 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017
Contents Section Page 1. Executive summary 3 2. Audit of the accounts 5 3. Value for Money conclusion 9 Appendices A Reports issued and fees 12 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 2
Executive summary Purpose of this letter Our Annual Audit Letter (Letter) summarises the key findings arising from the work we have carried out at Wigan Metropolitan Borough Council (the Council) for the year ended 31 March 2017. This Letter provides a commentary on the results of our work to the Council and its external stakeholders, and highlights issues we wish to draw to the attention of the public. In preparing this letter, we have followed the National Audit Office (NAO)'s Code of Audit Practice (the Code) and Auditor Guidance Note (AGN) 07 'Auditor Reporting'. We reported the detailed findings from our audit work to the Audit, Governance and Standards Committee (as those charged with governance) in our Audit Findings Report on 3 August 2017. Our responsibilities We have carried out our audit in accordance with the NAO's Code of Audit Practice, which reflects the requirements of the Local Audit and Accountability Act 2014 (the Act). Our key responsibilities are to: give an opinion on the Council s financial statements (section two) assess the Council s arrangements for securing economy, efficiency and effectiveness in its use of resources (the value for money conclusion) (section three). In our audit of the Council s financial statements, we comply with International Standards on Auditing (UK and Ireland) (ISAs) and other guidance issued by the NAO. Our work Financial statements opinion We gave an unqualified opinion on the Council s financial statements on 7 August 2017. Value for money conclusion We were satisfied that the Council put in place proper arrangements to ensure economy, efficiency and effectiveness in its use of resources during the year ended 31 March 2017. We reflected this in our audit opinion on 7 August 2017. Whole of government accounts We completed work on the Council's consolidation return following guidance issued by the NAO and issued our assurance statement on 29 September 2017. Certificate We certified that we had completed the audit of the accounts of Wigan Metropolitan Borough Council in accordance with the requirements of the Code on 29 September 2017. Certification of grants We also carry out work to certify the Council's Housing Benefit subsidy claim on behalf of the Department for Work and Pensions. Our work on this claim is not yet complete and will be finalised by 30 November 2017. We will report the results of this work to the Audit, Governance and Standards Committee in our Annual Certification Letter. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 3
Other work completed Council Finance staff attended a workshop we provided in January 2017 covering early closure of local authority accounts, changes to accounting standards and the Code of Practice, and emerging issues and future developments, to support officers involved in the preparation of the Financial Statements. Working with the Council/Authority We would like to record our appreciation for the assistance and co-operation provided to us during our audit by the Council's staff. Grant Thornton UK LLP October 2017 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 4
Audit of the accounts Our audit approach Materiality In our audit of the Council s accounts, we applied the concept of materiality to determine the nature, timing and extent of our work, and to evaluate the results of our work. We define materiality as the size of the misstatement in the financial statements that would lead a reasonably knowledgeable person to change or influence their economic decisions. We determined materiality for our audit of the Council s accounts to be 15.2m which is 2% of the Council s gross revenue expenditure. We used this benchmark, as in our view, users of the Council s accounts are most interested in how it has spent the income it has raised from taxation and grants during the year. We also set a lower level of specific materiality for senior officer remuneration and related party transactions. We set a lower threshold of 760k above which we reported errors to the Audit, Governance and Standards Committee in our Audit Findings Report. The scope of our audit Our audit involves obtaining enough evidence about the amounts and disclosures in the financial statements to give reasonable assurance they are free from material misstatement, whether caused by fraud or error. This includes assessing whether: The Council s accounting policies are appropriate, have been consistently applied and adequately disclosed; significant accounting estimates made by the Chief Finance Officer are reasonable; and the overall presentation of the financial statements gives a true and fair view. We also read the narrative report and annual governance statement to check they are consistent with our understanding of the Council and with the accounts included in the Statement of Accounts on which we gave our opinion. We carry out our audit in line with ISAs (UK and Ireland) and the NAO Code of Audit Practice. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit approach was based on a thorough understanding of the Council s business and is risk based. We identified key risks and set out overleaf the work we performed in response to these risks and the results of this work. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 5
Audit of the accounts These are the risks which had the greatest impact on our overall strategy and where we focused more of our work. Risks identified in our audit plan How w e responded to the risk Findings and conclusions Valuation of pension fund net liability The Council's pension fund net liability, as reflected in its balance sheet represents a significant estimate in the financial statements. As part of our audit w ork w e: identified the controls put in place by management to ensure that the pension fund net liability w as not materially misstated and assessed w hether those controls w ere implemented as expected and w hether they w ere sufficient to mitigate the risk of material misstatement. review ed the competence, expertise and objectivity of the actuary w ho carried out the Council's pension fund valuation. gained an understanding of the basis on w hich the IAS 19 valuation w as carried out, undertaking procedures to confirm the reasonableness of the actuarial assumptions made. review ed the consistency of the pension fund net liability disclosures in notes to the financial statements w ith the actuarial report from the Council s actuary. We did not identify any issues in respect of the valuation of the pension fund net liability, how ever, the Council s share of pension fund assets is rolled forw ard, by the actuary, from the latest formal valuation date. The roll forw ard amount is then adjusted for investment returns, the effective contributions paid into and estimated benefits paid from the fund by the Council and its employees. As such this estimate may differ from the actual assets held by the Pension Fund at 31 March 2017. Valuation of property plant and equipment The Council revalues its assets on a rolling basis over a five year period. The Code requires that the Council ensures that the carrying value at the balance sheet date is not materially different from the current value. This represents a significant estimate by management in the financial statements. As part of our audit w ork w e have: review ed management's processes and assumptions for the calculation of the estimate. review ed the competence, expertise and objectivity of any management experts used. review ed the instructions issued to valuation experts and the scope of their w ork held discussions w ith the Council's valuer about the basis on w hich the valuation w as carried out, challenging the key assumptions. review ed and challenged the information used by the valuer to ensure it w as robust and consistent w ith our understanding. tested revaluations made during the year to ensure they w ere input correctly into the Council's asset register evaluated the assumptions made by management for those assets not revalued during the year to assess how management satisfied themselves that these w ere not materially different to current value. We did not identify any issues to report. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 6
Audit of the accounts (continued) Risks identified in our audit plan How w e responded to the risk Findings and conclusions Changes to the presentation of local authority financial statements As part of our audit w ork w e: documented and evaluated the process for the required financial reporting changes to the 2016/17 financial statements. review ed the re-classification of the Comprehensive Income and Expenditure Statement (CIES) comparatives to ensure that they are in line w ith the Authority s internal reporting structure. review ed the appropriateness of the revised grouping of entries w ithin the Movement In Reserves Statement (MIRS). tested the classification of income and expenditure for 2016/17 recorded w ithin the Cost of Services section of the CIES. tested the completeness of income and expenditure by review ing the reconciliation of the CIES to the general ledger. review ed the classification of income and expenditure reported w ithin the new Expenditure and Funding Analysis (EFA) note to the financial statements. review ed the new segmental reporting disclosures w ithin the 2016/17 financial statements to ensure compliance w ith the CIPFA Code of Practice. We identified 2 amendments: (i) the Council had not disclosed expenditure by nature on note 5 to the Statement of Accounts. Whilst this is not required by the Code it is recommended and Management chose to amend the Statement of Accounts to include a note disclosing expenditure by nature. (ii) transport Levy of 22.2m had been included w ithin the Net costs of General Fund Services. The Code requires Levy to be included w ithin Other Operating Expenditure. Prior year figures w ere also restated to reflect the Code requirement. The expenditure cycle includes fraudulent transactions As part of our audit w ork w e: documented our understanding of management's process and controls over expenditure recognition through accruals and estimates. review ed estimates made as at 31 March 2016 against relevant actuals in 2016/17. tested a sample of operating expenses transactions back to supporting documentation. tested a sample of creditors balances as at 31 March 2017 to obtain assurance that expenditure w as recognised on an appropriate basis. We did not identify any issues in respect of the fraudulent transactions w ithin the expenditure cycle. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 7
Audit of the accounts Audit opinion We gave an unqualified opinion on the Council s accounts on 7 August 2017, in advance of the 30 September 2017 national deadline. The Council made the accounts available for audit in line with the agreed timetable, and provided a good set of supporting working papers. The finance team responded promptly and efficiently to our queries during the audit. Other statutory duties We also have additional powers and duties under the Act, including powers to issue a public interest report, make written recommendations, apply to the Court for a declaration that an item of account is contrary to law, and to give electors the opportunity to raise questions about the Council s accounts and to raise objections received in relation to the accounts. Issues arising from the audit of the accounts We reported the key issues from our audit of the accounts of the Council to the Audit, Governance and Standards Committee on 3 August 2017. Annual Governance Statement and Narrative Report We are required to review the Council s Annual Governance Statement and Narrative Report. The Council published both documents on its website with the draft accounts in line with the national deadlines. Both documents were prepared in line with the relevant guidance and were consistent with the supporting evidence provided by the Council and with our knowledge of the Council. Whole of Government Accounts (WGA) We carried out work on the Council s consolidation schedule in line with instructions provided by the NAO. We issued a group assurance statement which did not identify any issues for the group auditor to consider on 29 September 2017. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 8
Value for Money conclusion Background We carried out our review in accordance with the NAO Code of Audit Practice (the Code), following the guidance issued by the NAO in November 2016 which specified the criterion for auditors to evaluate: Overall VfM conclusion We are satisfied that in all significant respects the Council put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2017. In all significant respects, the audited body takes properly informed decisions and deploys resources to achieve planned and sustainable outcomes for taxpayers and local people. Key findings Our first step in carrying out our work was to perform a risk assessment and identify the key risks where we concentrated our work. We carried out an initial risk assessment in January 2017 and identified one significant risk in respect of specific areas of proper arrangements using the guidance contained in AGN03. We communicated this risk to the Audit, Governance and Standards Committee in our Audit Plan dated 20 March 2017. The key risks we identified and the work we performed are set out in table 2 overleaf.. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 9
Value for Money Table 2: Value for money risks Risk identified Work carried out Findings and conclusions Working w ith partners and other third parties in particular - Health & Social Care Integration The Council is seeking to deliver w ide ranging changes and greater integration to ensure the financial sustainability of adult health and social care services. Working closely w ith Wigan CCG they have a 25m pooled budget w ith potentially conflicting priorities, the project is complex and high profile. As part of our audit w ork w e: review ed the project management and risk assurance framew orks established by the Council to establish how it w as identifying, managing and monitoring these risks. review ed how w ell the Council w orks w ith the CCG to achieve its aims and objectives. The Council demonstrated its ability to w ork w ell w ith others, most notably it has a persuasive voice in the GM devolution agenda. It w orks closely w ith other agencies to address local issues including Fire and Police Authorities and it is w orking closely w ith Transport for Greater Manchester on its significant Highw ays projects. A key project for the Council is the integration of Health and Social Care. The Council recognised that if it continues to do things in the same w ay it w ould have a funding gap of 136m by 2021. The deal for health and w ellbeing includes the integration of Health and Social care services from across the borough. There are a number of enabling projects that sit under this strategic ambition. The Health and Wellbeing Board oversees this w ork and the Integrated Care Organisation (ICO) has been set up w ith the aim of delivering more streamlined services at a more local level. The Council has made good progress in 16/17 including making savings from the restructure of its back office and assessment functions. It has invested in a new adult social care information system w hich has enabled more efficient w orking. Also the Council has taken an innovative asset based approach centred around the particular needs of the individual and exploring more creative cost effective w ays of meeting their needs. The Council has launched a 2m innovation fund for residential and nursing care providers to access one off funding on the basis that they in turn can deliver greater efficiencies. Similar to the more traditional capital projects, the number and complexity of the projects in health and social care are not w ithout risks for the Council. The Council must continue to develop its relationship w ith other partners and continue to put users of the service at the heart of w hat it does. It should strengthen its project management and reporting arrangements to ensure the intended outcomes are achieved and ensure it has the capacity to deliver the overall programme in place. We concluded that the risk w as sufficiently mitigated and the Council has proper arrangements in place. 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 10
Value for Money Table 2: Value for money risks Risk identified Work carried out Findings and conclusions Informed decision making As part of our audit w ork w e: review ed the Council's agendas/ minutes and attended Audit, Governance and Standards Committee meetings. review ed key financial performance information and reporting. review ed the Annual Governance Statement. review ed cost and performance information. review ed the system of internal control including the risk registers. met w ith key officers Wigan Council is clear about its strategic vision and w orks hard to communicate and consult w ith its residents. It continues to be w ell-managed and has delivered 16m of savings in year and continues to look for greater economies and efficiencies. The Council is on track to deliver its savings for 2017/18 and has appropriate level of reserves. Its Fresh look' initiative is a crosscutting exercise to maximise the efficiencies across all services and departments. The Council has clear and transparent reporting arrangements in place and demonstrates its commitment to the values of good governance in practice w ith its communication of ' Deal for the Future' w hich sets out a w ay forward as a community. Risk management arrangements are in place. The system identifies, captures, escalates, review s and mitigates risk w here it is possible to do so. This w ill continue to be an important part of Wigan s control environment as it continues w ith energy and drive to deliver a sizeable programme of projects. We concluded that the risk w as sufficiently mitigated and the Council has proper arrangements in place. Financial Health-sustainable resource deployment The Council's MTFP is predicated on the investment programme delivering radical changes to the w ay in w hich services are delivered. The programme includes a savings target of 60m over the next 4 years. As part of our audit w ork w e: review ed the financial and project management arrangements in place. review ed the Council's response to significant financial pressures review ed the robustness and reasonableness of the Councils saving proposals and financial assumptions. review ed the Councils reserves and balances as a proportion of expenditure. Overall financial health w hilst challenging remains strong. It is clear that both Officers and Members of the Council are committed to making changes in the w ay services are delivered and the Council continues to invest in the infrastructure of the area. The Council has developed its core w ork-streams and enablers of its Deal for the Future. This includes projects such as Wigan Works, The deal for the community, The Deal for Health and Wellbeing and The Economy and skills transformation programme. The Council and its partners recognise the scale of changes required, and are taking a robust approach to the development of multi-agency partnerships. How ever, the number, co-dependency and complexity of the projects in place means that the change is not w ithout risk. The Council must continue to review and strengthen its programme management of major schemes and assess its capacity and capability to deliver at the required pace. It may have to prioritise some initiatives over others and use its limited resources accordingly. We concluded that the risk w as sufficiently mitigated and the Council has proper arrangements in place 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 11
Appendix A: Reports issued and fees We confirm below our final fees charged for the audit and other services. Fees Proposed fee Actual Fees 2015/16 Fees Statutory audit of Council 134,180 134,180 134,810 Housing Benefit Grant Certification 28,313 TBC 54,168 Total fees (excluding VAT) 162,493 TBC 188,978 Fees for other services Service Fees Non-Audit related services: Provision of cost-assurance services (review of expenditure on utilities) Subscription to Grant Thornton s Chief Finance Officer Insights softw are 40,000 12,500 The proposed fees for the year w ere in line w ith the scale fee set by Public Sector Audit Appointments Ltd (PSAA) Audit related services: Certification of Teachers Pension Return Certification of Pooling of Housing Capital Receipts Return 4,200 2,700 Grant certification The Housing Benefit Grant Certification fee is indicative and w ill be confirmed by PSAA. Our fees for grant certification cover only housing benefit subsidy certification, w hich falls under the remit of Public Sector Audit Appointments Limited. Fees in respect of other grant w ork, such as reasonable assurance reports, are show n under 'Fees for other services below. Total fees for other services 59,400 Non- audit services For the purposes of our audit w e have made enquiries of all Grant Thornton UK LLP teams providing services to the Council. The table above summarises all other services w hich w ere identified. Reports issued Report Date issued We have considered w hether other services might be perceived as a threat to our independence as the Council s auditor and have ensured that appropriate safeguards are put in place. Audit Plan 20 March 2017 Audit Findings Report 27 July 2017 The above non-audit services are consistent w ith the Council s policy on the allotment of non-audit w ork to your auditor Annual Audit Letter 13 October 2017 2017 Grant Thornton UK LLP The Annual Audit Letter for Wigan Council October 2017 12
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