The Whitley Pump had a conversation with David Stevens (Conservative), chair of the Reading Borough Council (RBC) Audit & Governance committee (A&G). Over a pint in one of our favourite venues in Reading he helped us understand how he sees his responsibilities and accountability. The good ship RBC is attempting to deliver the accounts 2016/17 for audit by Xmas and the same times as getting to grips with managing the 2017/18 budget, struggling with reconciliations and attempting multiple computer software upgrades and changes.
Chairing the committee
David Stevens was first elected to the Council in 2004 and sat on the predecessor to the current committee. He was asked by the Labour group to chair A&G, which he saw as “… a degree of trust in myself in the way I run it … and they could take it back from us [the Conservative group]… “.
David Stevens believes he brings a lot of experience from his working life in “… leadership, management skills, working around finance, my current role is about risk management, so you get a good sense of looking at organisations, seeing where the weak spots are, what’s going well, what’s not going well, risk registers and also a fair amount of looking at people and saying have they got the skills are they up to it … also chairing skills. ”
His stated aim for the committee is to ” … interrogate, examine, challenge and I think it works.”
David Stevens said that he did not approve A&G papers for the meeting but he could add agenda items and request reports beyond the standard procedural papers if required.
The A&G approves RBC annual accounts but it does not approve budgets or make any executive decisions. We asked David Stevens what his personal accountability was for the lateness and possible qualified opinion on the accounts from the auditors [Ref 1].
The audit results report for 2015/16 set out many difficulties which had been encountered in producing last years accounts and were unresolved.
David Stevens said that his first indication of problems with the accounts 2016/17 was on 18 July 2017 when the external auditors signalled a delay to the start of their work because working papers were not sufficient. It was even clearer when the accounts were not presented for sign off in September despite being expected.
RBC was in a unique situation and so David Stevens told the Whitley Pump that he had checked his position with the Local Government Association (LGA) and also spoken to the Department for Communities & Local Government (DCLG) about what happened next.
He went on to say that DCLG had visited Reading and interviewed people and checked the detailed plans for managing the situation and producing the accounts. They were content that things were under control. They had confidence in the interim Finance Director and, provided the work kept to the detailed plans produced, they would not intervene [takeover themselves], preferring to leave the accounts under local control and monitoring against the plans.
David Stevens said “the political responsibility lies with the Executive [leader, deputy leader and lead councillors] and the role of audit and governance is oversight, scrutiny and challenge but not accountability because they do not have an executive function.”
He feels strongly that he has to rely on what people are telling him, unless he has evidence to the contrary, and places a lot of trust in the professional judgement of the staff.
Internal audit and risk management
The Whitley Pump found it surprising that no questions were directed to internal audit about progress on the accounts at the last meeting although questions had been directed to external auditors.
David Stevens said “We could have … but the Chief Executive and the Finance Director were telling us. … I trust these senior figures to bring matters under control and to be delivered to the revised plan”.
The Whitley Pump suggested that it would have been prudent to have reviewed the risk register at the last meeting, given that there were so many balls in play: two sets of accounts ongoing, three major software changes. David Stevens said the risk register would be reviewed again at the January meeting.
Membership of the committee
The composition of A&G committee, which includes the leader and deputy leader of the Council, had been challenged by the external auditors, Liberal Democrats and the Chartered Insitute of Public Finance and Accounting (CIPFA) in their quality assessment of internal audit.
David Stevens replied “… in a perfect world it is probably incorrect to have an executive on an Audit & Governance committee, effectively marking their own homework.” However on balance he thought that the “… overall benefits outweighed the disbenefits… ” because of the need for members to have financial understanding and acumen and seniority.
What happens next?
He said that “I think January, February are a key moment; if at that point the auditor still says ‘I can’t sign these off’ … then what happens?”
David Stevens made one significant political point “No way would we [the Conservative group] go to the next council tax setting meeting in February and approve an increase in council budget if the last year’s accounts haven’t been signed off. … We must have the last year’s audited before we move forward for next year.”
To conclude David Stevens indicates that there are paddles to the ship and is confident on the right outcomes by February 2018. We shall see!
- Audit & Governance Committee including terms of reference
- Woe, woe and thrice woe!
- ‘Significant challenges’ in production of Reading Borough Council’s annual accounts
- Local Government Association
- Department for Communities and Local Government
- Internal Audit External Quality assessment – A&G 28 September 2017
- Chartered Institute of Public Finance and Accountancy
1. Categories of Adverse audit opinion
i. Qualified ‘except for’ opinion – limitation of scope
The financial statements give a true and fair view, except for the effect of a matter where the auditor was unable to obtain sufficient evidence. For example, the auditor considers the accounting records for a material transaction or balance in the accounts to be inadequate.
ii. Qualified ‘except for’ opinion – disagreement
The financial statements give a true and fair view, except for the effect of a matter where there was a material disagreement between the auditor and audited body about how the matter was treated in the financial statements.
iii. Adverse opinion
There was a disagreement that was so material, or pervasive, the financial statements as a whole were misleading or incomplete.
iv. Disclaimer of opinion
The auditor was not able to express an opinion, because they could not obtain evidence to such an extent that the financial statements as a whole could be misleading or incomplete.