Agenda item

To receive the External Audit Plan for 2026/27 from KPMG, External Auditors.

R Walton, KPMG, presented the External Audit Plan for the 2025-2026 year end.

The Plan would be very similar to that undertaken during the previous two years in format and content.  He would be looking at how risks were clarified and in particular he would look at materiality. 

In relation to the materiality, on page three of the report and the headlines, materiality was £14m but he expected that this could increase due to calculations of the council’s assets and those of NuPlace and it was considered that a higher materiality figure would be acceptable for that. 

Further in the report the council’s materiality was recorded as £11.4m which was broadly similar to that of the previous reporting period and this had been rounded down to £11m.

On page 5 of the report, KPMG had listed three significant risks which had remained consistent with the previous year in relation to significant risk, this had been limited to the valuation of investment property due to the potential risks if these were to be incorrectly valued.  This was not considered to be a significant risk, but this was still a very big number.   Whilst Investment properties were still considered a significant risk they had been moved lower down in the risk profile.  

New guidance had been introduced to try to simplify the way the valuations were processed to reduce the input required from professional valuers and auditors and the audit commentary reflected this.  It was felt that the audit risk commentary reflected the intention of the change.

In relation to the external audit plan two areas that would remain the same were the presumed risk of management over the controls and the valuation of post-retirement benefits.  These areas involved complex calculations and so would remain as a significant risk area.

The classification of risk between capital expenditure and non-capital expenditure had been changed to a standard audit procedural, but this would be kept under review.  In relation to the risk of adoption of the IRFS 16 (Leasing), which was adopted last year, there were no matters to report so this work would not be considered.

The last area to flag was set out at page 10 of the report in relation to auditing standards for public sector bodies and the presumption that there was fraud risk in regard to expenditure recognition, but this was not considered a risk to this council.

During the debate, some Members thanked KPMG for their explanation of the work being undertaken, particularly in respect of valuations and the risk associated with this.  It was asked if there had been a rule change during the last couple of years in relation to capital spending and the migration between capital and revenue.  Other Members commented on migration between capital and revenue and the pressure officers could be under to find new money.  In relation to the council’s spending, some Members asked where in the accounts they could find the SEND accumulated deficit and how it was accounted for and was it at any point set against the liability.  Was there a risk to other expenditure or would it appear in the council’s net revenue figures or the wider council cash flow.

R Walton, KPMG, confirmed that there had been a regulation change in respect of the statutory override of the use of capital receipts.  Where the council was deemed to make long-term efficiencies, the council could capitalise one-off costs to contribute towards those efficiencies.

The Director: Finance, People & IDT reassured Members that expenditure had to be accounted for as either revenue or capital.  If it was revenue this would be accounted for in the revenue budget or alternatively capital would be set out in the capital programme, there was no cross over between the two.  In relation to SEND this was unique as the government had allowed councils to disregard that overspend until 2028 and that sat within the unusable reserves in the accounts.  The balance at year end was £9.2m and the government had set out that they would fund 90% of that figure upon approval of the Council’s SEND Recovery Plan which had to be submitted by mid-June.  If this was not underwritten in the future, then the cost would fall to the Council and would have to be met from other reserves.

Members noted the report.