Agenda item

Paul Grady and Reshma Ravikumar introduced themselves to the committee as the newly appointed external auditors.  Paul Grady introduced the external audit draft plan for the council, covering the period from the 22-23 audit year onward as part of a five-year appointment. 

Councillor Khan posed a question about principles, seeking reassurance over the past three to four years regarding any potential fraud. The query aimed to understand how the council, without external auditing, could provide assurance to the public and address concerns related to fraudulent activities.

Paul Grady responded, expressing a desire for a more reassuring answer. He highlighted a significant limitation disclaimer for the specified years and raised a question regarding opening balances. Auditors typically accepted opening balances as they were, avoiding deep scrutiny. By the end of the 23/24 audit, they would have issued their opinion, but there might still have been some catch-up work, leading to a partial fill-in. While not offering complete assurance, Paul Grady emphasised that if anything seemed out of sync during the 23/24 audit, they would investigate and keep a vigilant eye.

The Chief Finance Officer added that Azets would look at comparisons between values for this year and prior years, although this didn't provide full assurance, it would help Azets identify any areas of concern.

Councillors asked about the experience of working with Watford and other councils regarding their progress. Paul Grady responded that the experience had been encouraging so far. Many councils faced challenges in their response due to capacity issues, but Watford had performed well. The council was noted for being responsive and knowledgeable.

Councillor Nembhard inquired about the measures in place, considering the financial challenges faced by many councils. The Chief Finance Officer responded, that a public interest report would generally find areas for improvement in governance or mistakes in such scenarios. The challenges were widespread, and factors like significant resource demands and unexpected inflation played a role. Forecasts did not anticipate these issues, putting councils in vulnerable positions. However, Watford was in a different position with reserves, and specific risks were managed carefully. The emphasis was on preserving reserves, spending within available means, and reserves used as a short-term solution if needed. Although not the ideal situation, reserves provided a buffer to buy time. If used, the goal would be to realign and top up reserves in the future, ensuring they had this critical resource.

Paul Grady concurred with the Chief Finance Officer, noting that they posed numerous questions to comprehend the risks. They delved into long-term investment risks, seeking detailed responses from the management team. They requested paperwork to substantiate the information provided, emphasising the importance of mature thinking. The responses indicated awareness of longer-term risks, acknowledging that there were aspects where early warning mechanisms were lacking or not fully understood and accepted.  The team actively monitored the risks, initiating in-depth discussions and focusing on specific issues, such as the Birmingham employment tribunal and the potential impact of social care on the budget. They expressed concern about the risk of the council overextending itself with investments, emphasising the importance of a comprehensive understanding of the associated.

Councillor Watkin raised two critical points during the session. Firstly, he sought reassurance that the same principles and standards would be applied in the audit transition from EY to the Azets. He specifically inquired about the materiality threshold of £80,000, questioning whether this figure was universally agreed upon or determined internally.  Secondly, Councillor Watkin asked about the challenges faced by Azets as the new auditors.  He highlighted that the delay in audits across local councils resulted from external factors.

Paul Grady responded, affirming that they adhered to international standards of auditing, identical to those followed by EY, ensuring uniform application of these standards. He anticipated that the risks outlined in the audit plan for 2023/24 would be familiar, mirroring those identified in previous plans shared by EY.  Regarding materiality, the figure set was 1.6 million, considered headline materiality. In the event of errors, as long as they did not exceed this figure, they were reported, but if under £80,000, they were deemed trivial. This threshold aimed to balance reporting key issues without overwhelming with trivial matters.  In terms of the transition, mechanisms for dealing with the backlog and consultation were becoming more apparent. As EY's conclusions approached, direct engagement with them was planned. The transition process adhered to routine arrangements specified in the PSAA contract.  Acknowledging the sensitivity of timing for the finance team, Paul Grady emphasised ongoing communication and balancing engagement to ensure enough time for team-building and interaction with EY while not staying too long to hinder the handover efficiency. Ongoing communication and careful planning were vital in this process.

In response to queries from councillors, Paul Grady affirmed that both himself and Reshma Ravikumar, along with a broader team, would serve as the representatives of Azets to Watford Council.