Agenda item

This report provides an update on the external audit progress for the Pension Fund’s Statement of Accounts for the year ending 31 March 2021.

The Head of Pensions and Treasury introduced the report which updated the Pensions Committee and Board on the external audit progress for the Pension Fund’s Statement of Accounts for the year ending 31 March 2021.

It was noted that the 2020-21 audit had been ongoing since November 2021 but that there had been a number of challenges which had contributed to the delay in the completion of this exercise which included the increasingly complex requirements for public sector accounting. It was stated that a detailed progress update was provided in the report. It was highlighted that this was a challenging environment for the audit sector nationally and that Haringey was not the only Pension Fund in this position.

It was highlighted that the majority of testing had been completed although, there were a few key areas that required further evidence and assurance. It was noted that officers were engaging with the external auditors regularly and it was unlikely that any of the outstanding issues would result in a change to the overall audit opinion. It was commented that there was one material misstatement in relation the valuation of private equity investments, as set out in the report. It was explained that the valuation of private equity was complex and estimates were often used whilst the final valuation reports were awaited; it was stated that, due to this timing difference, it was not uncommon to have material differences. It was confirmed that officers agreed with this finding and that the amendment would be included in the final audited version of the statement of accounts.

David Eagles, BDO, provided a summary of the external audit for 2020-21. It was explained that the ‘materiality’, or amount of discrepancy that was noted as significant, for the Haringey Pension Fund was based on 1% of the value of investments (£16 million) or 5% of the value of contributions (£2.3 million). It was noted that one material misstatement had been identified, as mentioned by the Head of Pensions and Treasury, in relation to private equity investment valuation. It was acknowledged that this was not a particular issue in Haringey and that it was reasonably common for Pension Fund draft accounts to be based on provisional information which was later amended. It was stated that this was not a significant issue and would be easy to amend.

In relation to the assumptions used by the Pension Fund’s actuary to calculate expected liabilities, it was stated that all but one of the assumptions statistics were within an acceptable range. It had been noted that the figure outside of the acceptable range was based on estimates, as set out in the report footnotes; this was considered to be reasonable, subject to confirmation from the National Audit Office (NAO).

In relation to private equity investment valuation, it was noted that the capital investment statement had been confirmed after the deadline for preparing the draft accounts and it was confirmed that the final accounts would include the amended information. In relation to contribution testing, it was noted that no issues had been identified so far and the only outstanding work was to test other admitted bodies’ contributions.

It was highlighted that the outstanding work for the 2020-21 audit was set out on page 63 of the agenda pack. It was noted that this was a reasonably short list but it was commented that a final opinion could only be issued after the audit on the main Council accounts had been completed. David Eagles expressed his thanks to the Pensions Team for their support throughout the audit.

Some members enquired when the accounts were due to be completed originally. David Eagles clarified that the deadline for the 2020-21 accounts was towards the end of 2021 but noted that there had been various issues. It was explained that there was a national crisis in public sector auditing which included a significant backlog, a shortage of qualified staff, increased complexity of accounts, and audit trail issues for some councils. It was added that there were some complications in relation to the valuation of infrastructure which had presented serious issues for both auditors and councils around the country. It was noted that some public sector audits from 2018 remained outstanding and that, due to the extensive issues nationally, the government had commissioned a review. It was highlighted that BDO was undertaking its best efforts and that, once the main Haringey Council accounts were completed, the Pension Fund accounts could be finalised. 

In response to a query about subsequent accounts, David Eagles clarified that the accounts for 2021-22 would not be commenced until the accounts for 2020-21 were completed. Some members asked whether the Haringey Pension Fund should report the delay to The Pensions Regulator (TPR). The Legal Advisor stated that the administering authority should report itself to the regulator where there were breaches. The Independent Advisor commented that he did not believe there was a requirement to report delayed accounts to TPR as Local Government Pension Schemes were responsible to the Department for Levelling Up, Housing, and Communities (DLUHC)

It was enquired whether the issues facing public sector audit would have similar impacts on the accounts for subsequent years. David Eagles noted that there were some exceptional circumstances affecting the 2020-21 accounts, including issues relating to infrastructure valuations and complex NHS audits. It was commented that auditors and councils were working hard to complete outstanding accounts but that this would be challenging if any significant issues arose as there were no additional audit resources. The Head of Pensions and Treasury commented that officers were prepared to prioritise audit work and finalise the Pension Fund audit as soon as the Council audit had been completed. It was noted that officers would continue to provide updates to the Pensions Committee and Board on the progress related to this matter.

In relation to the increase in audit fees, David Eagles noted that charges were only made for work undertaken; he confirmed that the increase was driven by additional audit expectations and was not related to resourcing issues. It was noted that BDO had not submitted a bid for the new framework contract as it would be focusing on completing existing work. It was highlighted that the audit costs were driven by quality expectations and the required scope of the audit. It was explained that there would be new auditing standards from 2022-23 which would result in a significant increase in audit work and this would impact audit fees. 

In response to a query about the delays in approving the accounts, the Head of Pensions and Treasury noted that there were some risks, including disruption to routine business. It was highlighted that officers were working with the auditor to minimise delays as much as possible. It was commented that the deadline in 2023 had been moved to 31 May 2023 and significant work was underway to close the accounts by this time. It was added that work over the last year had been reviewed and learning points had been noted. It was also confirmed that, if any significant issues were identified, the auditors would raise these and provide advice as necessary.

The Pension Committee and Board noted its serious concerns that the 2020-21 Pension Fund audit was outstanding. Concerns were expressed that this was a longstanding issue and that there was scope for the delays to continue and possibly worsen.  

In response to a query about the accounts, the Head of Pensions and Treasury noted that, although an audit opinion could not be provided until the main Council accounts had been confirmed, the majority of the work on the Pension Fund accounts audit could be completed subject to the final opinion on the main Council accounts. In response to a query, the Head of Pensions and Treasury confirmed that the Pension Committee and Board had responsibility for approving the Pension Fund accounts, as set out in the Council’s constitution. The Independent Advisor noted that the government was considering the issue of whether Council accounts and Pension Fund accounts should be separated; it was commented that they were separate in Wales. It was stated that the outcome of this issue was not yet known but that it could impact audits in future years.

Members noted that it would be helpful for a further update on the external audit to be provided at the Committee’s next meeting.

RESOLVED

To note the Audit Progress Report prepared by the Pension Fund’s external auditors, BDO, and appended as Appendix 1 to the report.