Newham in danger of missing deadline to publish accounts
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Capacity: EY’s Newham Report
The London Borough of Newham is in danger of missing its deadline to publish audited financial statements due to a lack of capacity in its finance team, according to auditors.
An audit of the council’s 2016/17 accounts by Ernst & Young (EY) found a raft of errors in accounting, three of which, totalling £5.9m, have yet to be resolved.
The audit firm said that although many issues arose as a result of the change to a new ledger system during the year, they indicate a “lack of control in basic finance controls and quality control over the accounts production process”.
EY partner Janet Dawson said: “Given the difficulties experienced this year by the council to produce accounts, the number of errors, and the number of control deficiencies identified during our audit, we remain concerned that the council will be unable to meet the earlier reporting deadline of 31 July 2018.”
The audit report also expressed “significant concern” that delays in supplying information could also indicate that Newham would miss the deadline.
It said: “They do not appear to have the capacity to respond to audit information requests and queries in a reasonable timeframe.”
The auditors have asked the council to correct outstanding misstatements or explain why they have not been revised.
In addition, the auditors corrected 31 other misstatements during their work, which have now been adjusted.
They also identified 45 disclosure adjustments, which have been updated by management in the financial statements.
In a statement, a Newham Council spokesperson said: “The council implemented a new financial system in 2016/17 and the audit uncovered a number of issues in relation to the mapping of financial data between the old, not fit for purpose system, and the new.
“This meant the accounts took longer to sign off than we would expect.
“As a result, management actions and resources have been put in place to address all issues raised.
“Although it has taken a long time the auditors have signed off the council’s accounts as being fair and accurate and they have again, as in previous years, given an unqualified opinion on them.
“The council expects to publish its accounts in line with the statutory deadlines.”
The issues with the council’s financial statement also caused delays to a separate audit of the council’s pension fund, also undertaken by Ernst & Young.
This audit found that the change in market value of the fund had been overstated by £19.7m.
It said: “Due to the controls not operating effectively in both the council and the pension fund accounting, this was not identified.”
The pension fund audit also raised concerns about the calculations used by the council’s pension adviser Barnett Waddingham to calculate the fund’s value.
It said: “Whilst we have sufficient assurance over the material accuracy of the council’s pensions disclosures, it is EY’s opinion that the methodologies used by Barnett Waddingham to derive the discount rate and RPI inflation assumptions in their calculation of the Local Government Pension Scheme valuation may not be robust as they do not take adequate account of the specific duration of the scheme’s liabilities.
“In future years, this could potentially lead to unacceptable assumptions.”
Graeme Muir, partner and head of public sector at Barnett Waddingham, said that a difference of opinion about the method of calculating the discount rate had been compounded by confusion over National Audit Office guidance.
“There are a number of methodologies that can be used to determine accounting assumptions,” said Muir.
“A couple of the big four firms favour one particularly complex method which last year — although it produced marginally different assumptions to the model we used — still produced liability valuations within their acceptable ranges.
“Our view is that neither methodologies are particularly robust — particularly for schemes like the LGPS that are still open to new members who have the longer durations — and it’s the accounting standards themselves that need to be reviewed to reflect some of these issues.”
