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Audit Completion Report DRAFTLondon Borough of HounslowYear ending 31 March 2019
CONTENTS
1. Executive summary
2. Significant findings
3. Internal control recommendations
4. Summary of misstatements
5. Value for Money conclusion
Appendix A – Draft management representation letter
Appendix B – Draft auditor’s report
Appendix C – Independence
Our reports are prepared in the context of the ‘Statement of responsibilities of auditors and audited bodies’ and the ‘Appointing Person Terms of Appointment’ issued
by Public Sector Audit Appointments Limited.
Reports and letters prepared by appointed auditors and addressed to the Council are prepared for the sole use of the Council and we take no responsibility to any
member or officer in their individual capacity or to any third party.
Mazars LLP is the UK firm of Mazars, an international advisory and accountancy group. Mazars LLP is registered by the Institute of Chartered Accountants in
England and Wales.
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Mazars LLP
Tower Bridge House
St Katharine’s Way
London
E1W 1DD
Audit and Governance Committee
Hounslow House
Bath Road
Hounslow
TW3 3EB
26 September 2019
Dear Members
Audit Completion Report – Year ended 31 March 2019
We are pleased to present our Audit Completion Report for the year ended 31 March 2019. The purpose of this document is
to summarise our audit conclusions.
The scope of our work, including identified significant audit risks and other areas of management judgement, was outlined in
our Audit Strategy Memorandum which we presented on 20 December 2019. We have reviewed our Audit Strategy
Memorandum and concluded that the original significant audit risks and other areas of management judgement remain
appropriate, albeit, our audit work has been extended on one significant audit risk.
We would like to express our thanks for the assistance of your team during our audit.
If you would like to discuss any matters in more detail then please do not hesitate to contact me on +44 (0)20 7063 4634
Yours faithfully
Lucy Nutley
Mazars LLP
Mazars LLP is the UK firm of Mazars, an integrated international advisory and accountancy organisation. Mazars LLP is a limited liability partnership
registered in England and Wales with registered number OC308299 and with its registered office at Tower Bridge House, St Katharine’s Way, London
E1W 1DD.
We are registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Details about our audit
registration can be viewed at www.auditregister.org.uk under reference number C001139861.
VAT number: 839 8356 73
Mazars LLP – Tower Bridge House, St Katharine’s Way, London, E1W 1DD
Tel: 020 7063 4000 – www.mazars.co.uk
Purpose of this report and principal conclusionsThe Audit Completion Report sets out the findings from our audit of the Council for the year ended 31 March 2019, and forms the basis
for discussion at the Audit and Governance Committee meeting on 26 September 2019.
The detailed scope of our work as your appointed auditor for 2018/19 is set out in the National Audit Office’s (NAO) Code of Audit
Practice. Our responsibilities and powers are derived from the Local Audit and Accountability Act 2014 and, as outlined in our Audit
Strategy Memorandum, our audit has been conducted in accordance with International Standards of Auditing (UK) and means we focus
on audit risks that we have assessed as resulting in a higher risk of material misstatement.
Sections 2 and 5 of this report outline the detailed findings from our work on the financial statements and our conclusion on the Council’s
arrangements to achieve economy, efficiency and effectiveness in its use of resources. Section 2 also includes our conclusions on the
audit risks and areas of management judgement in our Audit Strategy Memorandum, which include:
• Management override of control
• Revenue and expenditure recognition
• Property plant and equipment valuation
• Defined benefit liability valuation
• Private Finance Initiative (PFI)
• Valuation and associated accounting for the Civic Centre and Hounslow House
Status of our workAs we outline on the following page, our work is substantially complete. Subject to the satisfactory completion of the outstanding work,
at the time of issuing this report we have the following conclusions:
The 2014 Act requires us to give an elector, or any representative of the elector, the opportunity to
question us about the accounting records of the Council and to consider any objection made to the
accounts.
1. EXECUTIVE SUMMARY
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We anticipate issuing an unqualified opinion, without modification, on the financial statements. Our
proposed audit opinion is included in the draft auditor’s report in Appendix B.
We anticipate concluding that the Council had proper arrangements in place to secure economy,
efficiency and effectiveness in its use of resources. Our draft auditor’s report, including proposed
conclusion, is provided in Appendix B.
We anticipate completing our work on your WGA submission, in line with the group instructions issued by
the NAO, shortly after formally signing the financial statements opinion. We anticipate reporting that the
WGA submission is consistent with the audited financial statements shortly thereafter..
Opinion on
the financial
statements
Whole of
Government
Accounts
(WGA)
Value for
Money
conclusion
Wider
powers
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Status of our audit work
We have substantially completed our work on the financial statements and Value for Money conclusion for the year ended 31 March
2019. At the time of preparing this report the following matters remain outstanding:
We will provide the Audit & Governance Committee with an update in relation to these outstanding matters in a follow-up letter, prior to
signing the auditor’s report.
Our audit approach
We provided details of our intended audit approach in our Audit Strategy Memorandum in December 2018. While we have not identified
additional issues that have resulted in changes to our audit approach since we presented our Audit Strategy Memorandum, matters
identified during the course of the audit in respect of the significant risk over the valuation of PPE, have resulted in an extension of
testing completed in this area.
Materiality
We assessed materiality at the planning stage of the audit at £9.8m using a benchmark of 1.5% of Gross Operating Expenditure. Our
assessment of materiality for the final audit, based on the draft unaudited financial statements at 31 May 2019 and qualitative factors is
£8m, using a revised benchmark of 1% of Gross Operating Expenditure. We set our trivial threshold (the level under which individual
errors are not communicated to the Audit & Governance Committee, at £240,000) based on 3% of overall materiality.
Misstatements and internal control recommendations
Section 3 sets out the internal control recommendations that we make, together with an update on any prior year recommendations. That
we have reviewed to assess progress.
Section 4 outlines the misstatements noted as part of our audit as at the time of issuing this report. The net effect of corrected
adjustments is to decrease net assets and reserves in the balance sheet by £28.1m.
1. EXECUTIVE SUMMARY
4
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Audit area Description of outstanding matters
Property, Plant and
Equipment Valuation
(significant risk)
We are currently finalising our required audit procedures surrounding the final valuations from the
external valuer, following receipt of the formal valuation report.
Group accountsConfirmation of the accuracy and completeness of the consolidation process and group accounts
following receipt of group reporting information from component auditors.
Closure procedures and
review
Our final reviews and completion work is ongoing, including consideration of post balance sheet
events until the date of sign-off.
Whole of Government
Accounts (WGA)Our work on the WGA return will take place prior to the completion of the financial statement audit.
Overview of our group audit approach
The table below sets out the approach we have taken to auditing the Authority’s group financial statements.
Group materiality
We assessed group materiality at the planning stage of the audit at £9.8m using a benchmark of 1.5% of Gross Operating Expenditure,
equating to the largest element of the group, London Borough of Hounslow. Our assessment of materiality for the final audit, based on
the draft unaudited financial statements at 31 May 2019 and qualitative factors is £8m, using a revised benchmark of 1% of Gross
Operating Expenditure. Again, this equates to the largest element of the group accounts. We set our trivial threshold (the level under
which individual errors are not communicated to the Audit and Governance Committee) at £240k based on 3% of overall materiality.
1. EXECUTIVE SUMMARY (CONTINUED)
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Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Entity
Nature of
entity
audit
AuditorDescription of audit procedures
undertaken on the component
Change to
audit
approach
London Borough of
Hounslow
NAO Code
auditMazars LLP Full scope audit as described in this report None
Lampton Facilities
Management 360 Ltd
Lampton 360 Ltd
(incorporating the following
100% owned subsidiaries)
• Lampton Recycle 360
Ltd
• Lampton Investment 360
Ltd
• Lampton Greenspace
360 Ltd
• Lampton Development
360 LLP
Statutory
audit
Mazars LLP
Audit work is
performed by
a separate
team
The components have not been identified as
significant components, the overall approach
is:
• send group instructions to the component
auditor setting out our audit requirements;
• review the information provided by the
component auditor;
• Perform analytical procedures on the
component financial statements;
• review the consolidation process; and
• review the consolidation adjustments and
disclosures.
None
2. SIGNIFICANT FINDINGS
Set out below are the significant findings from our audit. These findings include:
• our audit conclusions regarding significant risks and key areas of management judgement outlined in the Audit Strategy
Memorandum;
• our comments in respect of the accounting policies and disclosures that you have adopted in the financial statements. On
page 12 we have concluded whether the financial statements have been prepared in accordance with the financial reporting
framework and commented on any significant accounting policy changes that have been made during the year;
• any further significant matters discussed with management; and
• any significant difficulties we experienced during the audit.
Significant risks and key areas of management judgement
As part of our planning procedures we considered the risks of material misstatement in the Council’s financial statements that required
special audit consideration. Although we report identified significant risks at the planning stage of the audit in our Audit Strategy
Memorandum, our risk assessment is a continuous process and we regularly consider whether new significant risks have arisen and
how we intend to respond to these risks. No new risks have been identified since we issued our Audit Strategy Memorandum.
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Significant risk
Management override
of controls
Description of the risk
Management at various levels within an organisation are in a unique position to perpetrate fraud
because of their ability to manipulate accounting records and prepare fraudulent financial statements
by overriding controls that otherwise appear to be operating effectively. Due to the unpredictable
way in which such override could occur there is a risk of material misstatement due to fraud on all
audits.
How we addressed this risk
We addressed the risk through performing audit procedures, covering a range of areas including (but
not limited to):
• accounting estimates included in the financial statements for evidence of management bias;
• any significant transactions outside the normal course of business; and
• journals and other adjustments recorded in the general ledger in preparing the financial
statements.
Audit conclusion
There have been no significant findings arising to date from our review of areas of potential
management override of controls.
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant risk
Revenue and
expenditure
recognition
Description of the risk
Our audit methodology incorporates this risk as a significant risk at all audits, although based on the
circumstances of each audit, it is rebuttable.
Based on our initial knowledge and planning discussions we have concluded that we can rebut the
presumption of a revenue and expenditure recognition risk for the majority of the Authority’s revenue income
and expenditure. In particular we can rebut the revenue recognition risk for income derived from Council Tax,
Grants and NNDR due to the low inherent risk associated with these amounts.
We are not rebutting the income risk relating to other material income streams within the Council, where the
level of inherent risk is higher.
We consider that the pressure to manage income and expenditure to deliver forecast performance in a
challenging financial environment could increase the risk of fraudulent financial reporting, leading to material
misstatement. Our risk based testing on income will therefore be extended to cover expenditure also.
How we addressed this risk
At the time of drafting our audit strategy, we planned to address this risk by obtaining a detailed
understanding of the Authority’s processes which assure it that revenue and expenditure is recognised in
the correct accounting year. We carried out:
• detailed testing of transactions within the 2018/19 financial statements to confirm they are accounted
for in the correct year;
• testing from payments and receipts around the year-end to provide assurance that there are no material
unrecorded items of income and expenditure in the 2018/19 accounts.
Audit conclusion
There were no significant findings arising from our review of revenue and expenditure recognition.
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2. SIGNIFICANT FINDINGS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant risk
Property, plant
and equipment
valuation
Description of the risk
Initial identified risk
Where a Council’s assets are subject to revaluation, the Code requires that the year end carrying value
should reflect the appropriate fair value as at that date. The Council has adopted a rolling revaluation model
which sees other land and buildings revalued over a five year cycle, which may result in individual assets
not being revalued for four years. This creates a risk that the carrying value of those assets that have not
been revalued in year is materially different from the year end fair value.
In respect of Council Dwellings, these are reviewed using a beacon valuation methodology, which values
Council stock by grouping assets into type and using a nominated beacon asset for each group. The
assessed value is uplifted based on an open market assessment then amended for an adjustment factor
provided by DCLG.
Due to the high degree of estimation uncertainty associated with these valuations, we have determined
there is a significant risk in this area.
Updated risk
During the course of the audit, the following was identified in respect of the valuation of Property, Plant and
Equipment (PPE) (in particular in respect of Land and Buildings and Community Assets):
• Although the council had planned, as per its accounting policy, to obtain detailed valuations for
approximately 20% of its assets during the year in accordance with the 5 year rolling programme, a
number of these revaluations had not been received at the date the draft financial statements were
published. As a result of number of valuations were still to be obtained at year end.
• In line with the accounting policy and Code requirements, the Council should revalue all applicable
assets over the course of a five year period. However, when preparing a disclosure note for the
financial statements, data within the Fixed Asset Register (FAR) indicated a number of these assets
had not been revalued within that timescale. The work required to support the preparation of the note
was not completed until after the deadline for the publication of draft financial statements. Taken with
the point above, £68.5m of assets had not been revalued as intended or in accordance with the policy.
• Further review and discussion of assets within the FAR identified a number of assets where, as a result
of queries over the treatment and analysis of individual assets, there were concerns over the accuracy
and consistency of the recording of data for assets. This included the analysis of valuations across
‘parent and child’ assets, resulting in the possible overstatement of valuations, and older assets
identified on the FAR that could not be evidenced as existing by the Council and were required to be
de-recognised.
The above issues were discussed in detail to consider the possible impact on the financial statements and
the additional work and procedures to be completed by Hounslow to complete an update of PPE valuations
and assess the value of assets affected by the above.
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2. SIGNIFICANT FINDINGS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant risk
Property, plant
and equipment
valuation
(continued)
How we addressed this risk
Initial response
At the time of drafting our audit strategy, we planned to address this risk by reviewing the approach adopted
by the Council to assess the risk that assets not subject to valuation at year end are not materially
misstated, and consider the robustness of that approach.
We will also assess the risk of the valuation changing materially in year, considering the movement in
market indices between revaluation dates and the year end, in order to determine whether these indicate
that fair values have moved materially.
In addition, for those assets which have been revalued during the year we will:
• assess the valuer’s qualifications;
• assess the valuer’s objectivity and independence;
• review the methodology used; and
• perform testing of the associated underlying data and assumptions.
Updated response
In response to the additional issues arising from the identified issues with the completion of valuations we
discussed the position with the council and, in response to the analysis of valuations provided have
completed the following additional assessments:
• Review of the assessed and documented position in respect of the £68.5m of assets which had not
been revalued as intended or in accordance with the policy;
• Review of the subsequent analysis of proposals for assets within the above value, as prepared by the
Council, to confirm understanding of the position, the further work to be completed (valuations) to
support recording of values for individual assets and the proposals for revision to the statements;
• Review of revaluation documentation obtained for assets where further valuations were completed, to
confirm the values to be reflected within the financial statements;
• Review of client prepared analysis of community assets and agreement of proposals for amendments
to the values included within the financial statements;
• Additional testing of sample of assets that had been revalued in the five year period to confirm
existence, the reasonableness of the net book value with reference to the most recent external
valuation and clear record keeping;
• Perform complete reconciliation of the value of PPE as disclosed within the revised financial statements
with the details in the updated FAR.
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2. SIGNIFICANT FINDINGS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant risk
Property, plant
and equipment
valuation
(continued)
Audit conclusion
Following completion of the additional work in respect of these assets, as well as the updating of the
financial statements for valuations not included in the draft unaudited statements, a number of amendments
to the financial statements have been agreed with the Council. A summary of the main amendments arising
from the review of revaluations are:
The result of all of the amendments is that, the net book value of PPE has decreased from £2,126.3m to
£2,098.2m, an overall movement of £28.1m, while the value of investment property has increased by
£9.0m. The detailed accounting entries are shown on page 19 and 20 of this report.
The above amendments are in respect of the majority of the issues identified from review of the valuation of
PPE. For a number of assets no additional work has been performed for the 2018/19 financial statements
and will be undertaken in 2019/20. Management’s consideration of these assets is that the potential
revaluation movement on them, is not material. This has therefore been included as as an uncorrected
misstatement (see page 18 of this report).
In addition, at the point of writing, we are considering the work of the valuer to be able to conclude whether
there are issues in respect of this work that we wish to bring to your attention.
In view of the significant amendments arising from entries within the FAR we have raised associated
internal control recommendations on page 14 of this report.
Note that, at the time of drafting the report, our analysis of the adjustments arising and confirmation of the
approach of the valuer are being finalised.
10
2. SIGNIFICANT FINDINGS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Land and
Buildings
HRA
dwellings
AUC Investment
property
Revaluation increases recognised in the revaluation reserve £30.4m
Revaluation decreases recognised in the costs of services £(37.9)m
Reduction in the valuation of council dwellings £(14.6)m
Reclassification of Assets Under Construction £29.1m £(29.1)m
Increases in the value of Investment Properties £9.0m
Significant risk
Defined benefit
liability valuation
Description of the risk
The last triennial valuation London Borough of Hounslow pension fund was completed as at 31 March
2016. As an admitted body within the fund, the valuation provides the basis of the associated net pension
liability for the Council as at 31 March 2019.
The valuation of the Council’s net liability includes use of discount rates, inflation rates, mortality rates etc.,
all of which should reflect the profile of the Council’s employees and other appropriate data.
Due to the high degree of estimation uncertainty associated with these valuations, we have determined
there is a significant risk in this area.
How we addressed this risk
At the time of drafting our audit strategy, we planned to address this risk by reviewing the controls that the
Authority has in place over the information sent to the Scheme Actuary (Barnet Waddingham LLP) by the
fund administrators Capita (until August 2018) and West Yorkshire Pension Fund (from September 2018).
We also:
• assessed the skill, competence and experience of the Fund’s actuary;
• challenged the reasonableness of the assumptions used by the actuary as part of the annual IAS 19
valuation;
• carried out a range of substantive procedures on relevant information and cash flows used by the
actuary as part of the annual IAS 19 valuation.
Audit conclusion
The NAO’s consulting actuary (PwC) has reviewed assumptions used by all LGPS actuaries in 2018/19.
Their review identified two matters:
• The impact of GMP equalisation may not be fully included in LGPS annual IAS 19 valuations; and
• The impact of a legal case during the year (known as the McCloud case), concerning potential age
discrimination in relation to transition provisions introduced as part of pension reform measures, has not
been included in any LGPS annual IAS 19 valuations. The legal decision only arose following
publication of the draft financial statements.
In our view, these matters gives rise to at least a constructive obligation, which are required to be
recognised under IAS 19, which could have a potential material impact on the Fund and the Council. The
Council has consulted with its actuary to obtain an assessment of the impact of the McCloud case, as the
impact of GMP had already been assessed within the figures provided. The Actuary has assessed that the
increase in pension liability required to take account of the McCloud judgement is £7.8m. The Council has
updated the amounts and disclosures in the statement of accounts to reflect this additional liability.
Subject to the adjustments arising as a result of the impact of the McCloud case, included as an adjusted
misstatement on page 19, there were no significant findings arising from our review of the defined benefit
liability valuation.
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2. SIGNIFICANT FINDINGS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Management
judgement
Valuation and
associated
accounting for the
Civic Centre and
Hounslow House
Description of the management judgement
The Council is in the process of transferring its principal location from the current Civic Centre to a new
site (Hounslow House). The transfer of staff and services is scheduled to occur prior to the year end,
although we understand the civic centre site, which is due to be transferred to developers will still be in the
Council’s ownership at 31 March 2019. Therefore judgements will be required to be made in the financial
statements regarding:
• valuation of the Civic Centre, including any dilapidation provisions,
• the valuation of Hounslow House and its inclusion within the financial statements.
How our audit addressed this area of management judgement
At the time of drafting our audit strategy, we planned review the proposed accounting treatment for the Civic
Centre and Hounslow House against applicable accounting standards. We will consider the timetable for
the asset transfer to ensure that the assets, and associated values, are appropriately reflected within the
financial statements.
We will consider the inclusion of Hounslow House within the value of Property, Plant and Equipment at year
end as part of our review of significant capital additions in the period.
Audit conclusion
There were no significant findings arising from our review of the accounting treatment for the Civic Centre
and Hounslow House
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2. SIGNIFICANT FINDINGS (CONTINUED)
Management
judgement
Private Finance
initiative
Description of the management judgement
The Council entered into a PFI contract in 2012 for the maintenance and updating of highways and street
lighting and the associated infrastructure. The contract is for 25 years and came into effect from January
2013. Payments and assets arising under the contract have been recorded within the Council’s financial
statements.
How our audit addressed this area of management judgement
At the time of drafting our audit strategy, we planned to address this judgement by reviewing in detail the
PFI agreement and the associated financial model in respect of the payments to be made, ensuring the
disclosures within the financial statements are in line with these and the requirements of the Code of
Practice.
Audit conclusion
There were no significant findings arising from our review of the PFI agreement.
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Qualitative aspects of the Council’s accounting practices
We have reviewed the Council’s accounting policies and disclosures and concluded they comply with the requirements of the Code of
Practice on Local Authority Accounting (the Code). We have discussed with management a difference in interpretation of the Code
requirements for the disclosure of the Expenditure and Funding Analysis:
• The presentation of the Expenditure and Funding Analysis, which we consider should be included as a note to the financial
statements under the Code requirements, has been presented by the Council at the start of the Main Local Authority Financial
Statements, separate to the notes to the financial statements. Additional narrative has been included to reflect that this is a note
to the financial statements. Management have provided explanation for their decision to show this note separately to the other
notes to the financial statements.
Draft accounts were received from the Council on 31 May 2019, although a number of the required disclosures were missing. Updated
accounts were received on 28 August 2019. Supporting working papers were made available to us from the first day of the audit.
Significant matters discussed with management
In addition to the areas of significant risk identified in the Audit Strategy memorandum, we discussed the following significant matters
with management:
• Group Accounts – the Council has assessed its subsidiaries, associates and joint ventures and, in view of continuing
developments, considers them to be material and has prepared group accounts. We have considered management’s judgement
and are satisfied it is appropriate.
• NDR Appeals Provision – the Council has not made any provision for appeals associated with NHS Trusts claiming charitable
status. We are satisfied , based on the Council’s assessment of the outcome of this case, that this matter does not affect the risk
of material misstatement.
Significant difficulties during the audit
During the course of the audit we have had the full co-operation of management. We would like to express our thanks to management
and officers for their co-operation throughout the audit.
Wider responsibilities
Our powers and responsibilities under the 2014 Act are broad and include the ability to:
• issue a report in the public interest;
• make statutory recommendations that must be considered and responded to publicly;
• apply to the court for a declaration that an item of account is contrary to law; and
• issue an advisory notice under schedule 8 of the 2014 Act.
We have not exercised any of these powers as part of our 2018/19 audit.
The 2014 Act also gives rights to local electors and other parties, such as the right to ask questions of the auditor and the right to make
an objection to an item of account. We have received no questions or objections.
13
2. SIGNIFICANT FINDINGS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
The purpose of our audit is to express an opinion on the financial statements. As part of our audit we have considered the internal
controls in place relevant to the preparation of the financial statements. We do this in order to design audit procedures to allow us to
express an opinion on the financial statement and not for the purpose of expressing an opinion on the effectiveness of internal control,
nor to identify any significant deficiencies in their design or operation.
The matters reported are limited to those deficiencies and other control recommendations that we have identified during our normal audit
procedures and that we consider to be of sufficient importance to merit being reported. If we had performed more extensive procedures
on internal control we might have identified more deficiencies to be reported or concluded that some of the reported deficiencies need
not in fact have been reported. Our comments should not be regarded as a comprehensive record of all deficiencies that may exist or
improvements that could be made.
Our findings and recommendations are set out below. We have assigned priority rankings to each of them to reflect the importance that
we consider each poses to your organisation and, hence, our recommendation in terms of the urgency of required action. In summary,
the matters arising fall into the following categories:
Priority ranking Description Number of issues
1 (high) In our view, there is potential for loss, either of data or financial value, as well as
damage to reputation. This may have implications for the achievement of business
strategic objectives. The recommendation should be taken into consideration by
management immediately.
1
2 (medium) In our view, there is a need to strengthen internal control or enhance business
efficiency. The recommendations should be actioned in the near future.
1
3 (low) In our view, internal control should be strengthened in these additional areas when
practicable.
0
14
3. INTERNAL CONTROL RECOMMENDATIONS
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant deficiencies in internal control – Level 1
Fixed Asset Register review
Description of deficiency
As set out in our response to the significant risk around PPE valuations, a number of matters have arisen from review of the
Council’s Fixed Asset Register (FAR). Review of the details within the FAR has identified a number of issues with the
completeness and accuracy of the data, in particular:
• Inconsistency in the recording of assets and valuations (against parent and child assets)
• Retention of assets which have been disposed off or subject to amalgamation with other assets
• Inappropriate recording of costs and details for individual assets such that the Council was unable to prove existence.
During the audit there have been a significant number of amendments to the data held in the FAR, although there remain assets,
with an immaterial value where the Council have elected to review and correct FAR entries as necessary in 2019/20.
The Council has, as a result of significant changes in the resources available in the finance department, been unable to ensure the
FAR has been completed and accurately updated for all of the valuations identified as being required within the year.
Potential effects
The Council holds a significant value of assets and therefore the records supporting that value should be kept up to date and in
accordance with the Council accounting policy and Code requirements. Failure to do so, increases the risk that there are material
misstatements in the supporting records that are used to prepare the financial statements and associated disclosure notes.
Recommendation
We note that the Council has completed significant additional work prior to the issue of this report, to resolve a number of the
issues arising from the review of data within the FAR and to update the financial statements.
Notwithstanding, we consider that the Council should perform a complete review of the data within the FAR, on a line by line basis,
to ensure the details recorded across the PPE categories are such that.
• all separately identifiable assets are confirmed as existing (and are separately identifiable for the purposes of future valuations)
• all separately identifiable assets have been subject to a detailed external valuation within the last 5 years
• all expenditure on additions has been appropriately recorded against a separately identifiable asset.
Management response
The Council holds PPE data in places for differing purposes, not just the Finance Fixed Asset Register. Therefore, we have a
different view in regards to the potential for material loss however we have already begun to put activity in place with the auditor to
ensure that as we move beyond year 1 of the new audit contract we are clear and can satisfy their requirements.
15
3. INTERNAL CONTROL RECOMMENDATIONS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant deficiencies in internal control – Level 2
Ongoing Fixed Asset Register review processes
Description of deficiency
The Council has, as a result of further review of the content of the FAR across the period of the audit, identified a number of
subsequent amendments to values that had been included in the draft financial statements. These adjustments include the
reclassification of £29.1m of Assets Under Construction.
Potential effects
The details within the FAR are not subject to a process of ongoing review by the Council, with the process is focused on the year
end. In view of the reduced timescale for the preparation of the financial statements, coupled with limited resources in the finance
team, necessary amendments to the accounts may not be identified in a timely basis and omitted from the financial statements,
causing future material adjustments to be made to the draft accounts.
Recommendation
The Council should seek to improve its existing procedures for the ongoing review and management of the data within the FAR to
allow for regular review of the content as well as the identification of transactions relating to the additions (including Assets Under
Construction), and disposals made to PPE over the course of the year. This will help to ensure entries are not omitted from the
accounts.
Management response
The council will look into additional processes for 2019/20 to identify / capture any assets under construction that become
operational and any disposals made during the year.
16
3. INTERNAL CONTROL RECOMMENDATIONS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Follow up of previous internal control points
We set out below an update on internal control points raised in the prior year by the previous auditor.
17
3. INTERNAL CONTROL RECOMMENDATIONS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Description of deficiency (per KPMG report)
Valuations and estimates are always complex areas of the accounts. Earlier deadlines means the timing and tolerances applied to
these need to be carefully considered. Historically the information received by the Authority that has been used in the impairment
review has indicated that there has been no indicators that a material change in the value of the Authority’s asset base. In 2017/18
the Authority received a market indexation report which showed that specialised assets valued on a depreciated replacement cost
basis had increased by 9.5% this was reflected in the asset base of the Authority that had been subject to valuation by the valuer.
The residual asset base in this category that wasn’t subject to in year valuation by the valuer was not indexed.
Potential effects
The 2017/18 statement of accounts, and in particular the carrying value of the Council’s assets, has been prepared in accordance
with the Council’s accounting policies, with a large proportion of the fixed assets being subject to a full revaluation or desktop
review during the year to ensure that the amount shown on the balance sheet is not materially misstated. Additional work to
revalue assets not reviewed in 2017/18 would only be expected when this would result in a material change, which is not the case.
The Council’s impairment review policy is aimed at identifying where there is a potential reduction in value due to damage,
obsolescence, or change in market value. This review was undertaken and concluded that no reductions in value needed to be
applied. Any change in market value is likely to be an increase in value and, as stated above, steps had already been taken to
ensure the balance sheet reflected appropriate valuations in accordance with our accounting policies. We will take this into
consideration as part of planning for the 2018/19 close down process.
Recommendation
Given the reduced closedown timeframe the Authority needs to ensure that the information provided to the finance team to allow it
to complete the impairment review is also received in a shorter timeframe, this includes internal information about specific
impairment indicators from the estates team and externally provided information such as the commissioned valuers market report.
This will allow the Authority to continue to prepare robust and timely impairment reviews.
2018/19 update
No further issues have been identified in respect of the impairment of assets, although as noted earlier within the report there have
been further issues identified with the processes surrounding the recording of PPE.
Misstatements
We set out over the following pages the misstatements above the level of trivial threshold of £240,000 that have been identified for
adjustment during the course of the audit, analysing as those either uncorrected or corrected.
Uncorrected misstatements 2018/19
Audit work identified a number of assets where the council did not have recent formal valuations to support the values detailed within the
register. For a number of assets which have not been revalued in the five year period required by the Code and the Council’s
accounting policies, no additional work has been performed to confirm the valuation as at 31 March 2019. Work will be undertaken on
these assets in 2019/20. Management’s estimation of the potential revaluation movement on these assets is £237,000. Management has
decided not to adjust the balance as it considers the amount to be immaterial.
18
4. SUMMARY OF MISSTATEMENTS
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
19
Comprehensive Income and
Expenditure Statement
Balance Sheet
Dr (£m) Cr (£m) Dr (£m) Cr (£m)
1 Dr: Cost of services (CIES)
Cr: PPE
Dr: Unusable reserves
Cr: Adjustments between accounting and funding basis
(MIRS)
38.1
38.1
38.1
38.1
Adjustments arising as a result of the completion of additional revaluations for a number of assets recorded within the FAR
and the correction of errors identified with overall values recorded (downward revaluations)
2 Dr: Other operating expenditure (CIES)
Cr: PPE
Dr: Unusable reserves
Cr: Adjustments between accounting and funding basis
(MIRS)
5.8
5.8
5.8
5.8
Adjustments made to de-recognise those assets and valuations for which an individual asset line is no longer appropriate
within the financial statements.
3 Dr: PPE
Cr: Other operating expenditure (CIES)
Dr: Adjustments between accounting and funding basis
(MIRS)
Cr: Unusable reserves
9.0
9.0
9.0
9.0
Adjustments arising as a result of the completion of further revaluations for investment properties recorded within the
Council financial statements.
4 Dr: ST investments
Cr: Financing and Investment Income (CIES)
Dr: Adjustments between accounting and funding basis
(MIRS)
Cr: Unusable reserves
0.5
0.5
0.5
0.5
Being the adjustment to recognise the required revaluation of Short Term investments for the requirements of the financial
instrument disclosures
4. SUMMARY OF MISSTATEMENTS (CONTINUED)
We set out below the misstatements identified for adjustment during the course of the audit, above the level of trivial threshold of
£240k.
The table below outlines the misstatements that have been identified by management and adjusted during the course of the audit.
Adjusted misstatements 2018/19
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Disclosure amendments
During our review of the financial statements we have identified some amendments to disclosures. The following were amended by
management.
• Financial instruments: Various revisions and disclosure amendments to ensure the disclosures are appropriate for the type of
financial instruments.
• Pension Fund: Inclusion of additional disclosures omitted from the original draft;
• General: A number of other changes have been made to the financial statements not requiring individual analysis.
20
Comprehensive Income and
Expenditure Statement
Balance Sheet
Dr (£’m) Cr (£’m) Dr (£’m) Cr (£’m)
5 Dr: PPE
Cr: Surplus or deficit on revaluation
Dr: Adjustments between accounting and funding basis
(MIRS)
Cr: Unusable reserves
15.8
15.8
15.8
15.8
Adjustments arising as a result of the completion of additional revaluations for a number of assets recorded within the FAR
and the correction of errors identified with overall values recorded (upward revaluations)
6 Dr: PPE – Land and Buildings
Cr: PPE – Assets Under Construction
29.1
29.1
Adjustment made to the value of Assets Under Construction for the identification of additional assets that came into use
during 2018/19.
7 Dr: Trade Creditors
Cr: Provisions
2.5
2.5
Reclassification of NNDR appeals provision
8 Dr: CIES (service costs)
Dr: Other Operating Expenditure
Cr: Long term liabilities (IAS 19 deficit)
Dr: Unusable reserves
Cr: Adjustments between accounting and funding basis
(MIRS)
7.8
1.7
9.5
9.5
9.5
The additional IAS 19 liabilities arising from the McCloud judgment being incorporated into the actuarial valuation
Total adjusted misstatements £78.7m £78.7m £110.3m £110.3m
4. SUMMARY OF MISSTATEMENTS (CONTINUED)
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Our approach to Value for Money
We are required to form a conclusion as to whether the Council has made proper arrangements for securing economy, efficiency andeffectiveness in its use of resources. The NAO issues guidance to auditors that underpins the work we are required to carry out in orderto form our conclusion, and sets out the criterion and sub-criteria that we are required to consider.
The overall criterion is that, ‘in all significant respects, the Council had proper arrangements to ensure it took properly informed decisionsand deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.’ To assist auditors in reaching aconclusion on this overall criterion, the following sub-criteria are set out by the NAO:
• Informed decision making
• Sustainable resource deployment
• Working with partners and other third parties
Commentary against each of the sub-criteria, and an indication of whether arrangements are in place, is provided below.
21
5. VALUE FOR MONEY CONCLUSION
Sub-criteria Commentary Arrangements in
place?
Informed
decision
making
A Council Constitution, setting out the governance structure of the Council is in place which is
reviewed regularly. The Audit and Governance Committee fulfils the function of an audit
committee. The Audit and Governance Committee has met regularly throughout the year. The
Committee has received the reports of internal and external audit, and challenged the findings
and recommendations as appropriate.
A medium term financial strategy (MTFS) was in place for the year ended 31 March 2019,
covering the period 2018/19 to 2020/21. This was approved by Cabinet and Borough Council
in September 2017. The 2018/19 budget was balanced and linked to the MTFS which
predicted a savings requirement of £7.3m in 2018/19. Corporate savings of £15.9m were
achieved in 2018/19, which in the majority covered departmental overspends of £17.4m,
leaving a £1.5m overspend for the financial year.
During the year there has been regular reporting to Cabinet of financial information. The year-
end revenue position reported is not significantly different to that forecast during the year.
A Treasury Management Strategy was in place for the year ended 31 March 2019. The Audit
and Governance Committee has received regular treasury management reporting during the
financial year. The 2018/19 Treasury Management Strategy Statement was approved by the
Council in February 2018.
The Corporate Risk Register is reported on a regular basis to the Audit and Governance
Committee, with supporting reports identifying additional or changes to mitigating actions from
the preceding report.
Yes
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
22
5. VALUE FOR MONEY CONCLUSION
Sub-criteria Commentary Arrangements in
place?
Sustainable
resource
deployment
The Council has in prior years implemented a number of savings projects and income
generation strategies in order to recoup the £140m lost from budgets through cuts to
public spending.
A Medium Term Financial Strategy (MTFS) 2018/19– 2020/21 was approved by Borough
Council in September 2017 alongside the 2018/19 budget. While this identified savings
requirements, assumptions regarding potential Council Tax and NNDR income increases
were not included, which then materialised. Therefore, the Council was able to set a
balanced budget for 2018/19 without the need to find the savings initially identified in the
MTFS.
During 2018/19, the MTFS has been refreshed, and in November 2018, Borough Council
approved the refreshed document, which includes a savings requirement of £28.7m over
the years 2019/20 to 2021/22. During the 2019/20 budget setting process, Borough
Council approved a 4.99% increase to Council Tax levels (2.99% being the Adult Social
Care precept, 2% for general increases). This increase on an updated Council Tax base
has meant that the savings requirements of £5.8m for 2019/20 identified in the MTFS have
been met through additional income and a balanced budget has been set.
The Council recognises the need to reduce departmental overspends and to achieve
savings in future years. Savings plans for future years of the MTFS are well progressed,
with Directorates being asked to identify savings to a higher level than the identified gap of
£28.7m, to allow Members a level of flexibility as to where savings are achieved.
We appreciate that at the point of setting the budget and MTFS in November 2018, there
were, and still are, key uncertainties in local authority funding relating to the Government
Comprehensive Spending Review, the Fair Funding Review in Local Government, and the
impact on the Council of changes to the business rates retention scheme. There is no
guarantee that these elements would all have a positive effect on the Council’s funding.
Yes
Working with
partners and
other third
parties
The Council’s Constitution details the arrangements for contracting with third parties. The
Council has written procedures for procuring products and services, which are within its
constitution.
The Health and Wellbeing Board is responsible for the Hounslow Better Care Fund plan.
The Board, made up of representatives from the Council, NHS Harrow CCG, local police
and the voluntary sector, monitors the outcome performance of the plan.
The Council is also a lead member in ‘Hounslow Together’ a Local Strategic Partnership
of public, private and voluntary sector organisations. The Hounslow Together Board are
responsible for championing and driving the Future Borough Strategy which was refreshed
for the period 2018-2035 in June 2018.
Yes
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
Significant Value for Money risksThe NAO’s guidance requires us to carry out work to identify whether or not a risk to the Value for Money conclusion exists. Risk, in the context of our Value for Money work, is the risk that we come to an incorrect conclusion rather than the risk of the arrangements in place at the Council being inadequate. In our Audit Strategy Memorandum, we reported that we had identified one significant Value for Money risk. The work we carried out in relation to significant risks is outlined below.
Our overall Value for Money conclusionOur draft auditor’s report included in Appendix B states that we intend to issue an unqualified Value for Money conclusion for the 2018/19 financial year.
23
5. VALUE FOR MONEY CONCLUSION (CONTINUED)
Risk Work undertaken Conclusion
Risk heading
The current financial forecast shows
that the Council is forecasting an
overspend of approximately £18m in
2018/19, consisting of recurrent
overspends reported in 2017/18 and
2018/19 savings that are currently
assessed as being unachievable or at
significant risk of delivery. These
amounts have to date been offset by
£2.6m of identified mitigating actions.
The Authority’s Medium Term Financial
Plan for the period to 2021/22, as
presented to Cabinet in early
November 2018, notes the above
position and has identified the need to
make further savings of £28.7m prior to
2021/22 to be able to remain within
forecast funding levels. The 2020/21
budget is expected to include further
proposals to support the delivery of the
overall savings requirement.
We will review the controls put in place by the Authority to
ensure financial resilience, including the development and
implementation of the Medium Term Financial Plan, and that
this has taken into consideration factors such as funding
reductions, salary and general inflation, demand pressures,
etc.
We will specifically review management actions and
mitigations to deliver the budgeted position.
We obtained sufficient
assurance to conclude
arrangements are in place
Executive summary Significant findingsInternal control
recommendationsSummary of
misstatementsValue for Money
conclusionAppendices
[To be provided to us on client headed note paper]
Mazars LLP
Tower Bridge House
St Katharine’s Way
London
E1W 1DD
[Date]
Dear Lucy
London Borough of Hounslow - audit for year ended 31 March 2019
This representation letter is provided in connection with your audit of the financial statements of London Borough of Hounslow (‘the Council’) for the year
ended 31 March 2019 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view in accordance with the
CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19 (the Code) and applicable law.
I confirm that the following representations are made on the basis of enquiries of management and staff with relevant knowledge and experience (and,
where appropriate, inspection of supporting documentation) sufficient to satisfy ourselves that I can properly make each of the following representations
to you.
My responsibility for the financial statements and accounting information
I believe that I have fulfilled my responsibilities for the true and fair presentation and preparation of the financial statements in accordance with the Code
and applicable law.
My responsibility to provide and disclose relevant information
I have provided you with:
• access to all information of which we are aware that is relevant to the preparation of the financial statements such as records, documentation and
other material;
• additional information that you have requested from us for the purpose of the audit; and
• unrestricted access to individuals within the Council you determined it was necessary to contact in order to obtain audit evidence.
I confirm as Executive Director of Finance and Resources that I have taken all the necessary steps to make me aware of any relevant audit information
and to establish that you, as auditors, are aware of this information.
As far as I am aware there is no relevant audit information of which you, as auditors, are unaware.
Accounting records
I confirm that all transactions that have a material effect on the financial statements have been recorded in the accounting records and are reflected in
the financial statements. All other records and related information, including minutes of all Council and committee meetings, have been made available to
you.
Accounting policies
I confirm that I have reviewed the accounting policies applied during the year in accordance with Code and International Accounting Standard 8 and
consider these policies to faithfully represent the effects of transactions, other events or conditions on the Council’s financial position, financial
performance and cash flows.
24
APPENDIX ADRAFT MANAGEMENT REPRESENTATION LETTER
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
Accounting estimates, including those measured at fair value
I confirm that any significant assumptions used by the Council in making accounting estimates are reasonable, including:
• those measured at current or fair value; and
• provision for NNDR Appeals.
• those assets not revalued in the five year revaluation cycle do not have a material impact on the financial statements.
Contingencies
There are no material contingent losses including pending or potential litigation that should be accrued where:
• information presently available indicates that it is probable that an asset has been impaired or a liability had been incurred at the balance sheet date;
and
• the amount of the loss can be reasonably estimated.
There are no material contingent losses that should be disclosed where, although either or both the conditions specified above are not met, there is a
reasonable possibility that a loss, or a loss greater than that accrued, may have been incurred at the balance sheet date.
There are no contingent gains which should be disclosed.
All material matters, including unasserted claims, that may result in litigation against the Council have been brought to your attention. All known actual or
possible litigation and claims whose effects should be considered when preparing the financial statements have been disclosed to you and accounted for
and disclosed in accordance with the Code and applicable law.
Laws and regulations
I confirm that I have disclosed to you all those events of which I am aware which involve known or suspected non-compliance with laws and regulations,
together with the actual or contingent consequences which may arise therefrom.
The Council has complied with all aspects of contractual agreements that would have a material effect on the accounts in the event of non-compliance.
Fraud and error
I acknowledge my responsibility as Executive Director of Finance and Resources for the design, implementation and maintenance of internal control to
prevent and detect fraud and error.
I have disclosed to you:
• all the results of my assessment of the risk that the financial statements may be materially misstated as a result of fraud;
• all knowledge of fraud or suspected fraud affecting the Council involving:
• management and those charged with governance;
• employees who have significant roles in internal control; and
• others where fraud could have a material effect on the financial statements.
I have disclosed to you all information in relation to any allegations of fraud, or suspected fraud, affecting the Council’s financial statements
communicated by employees, former employees, analysts, regulators or others.
Related party transactions
I confirm that all related party relationships, transactions and balances, have been appropriately accounted for and disclosed in accordance with the
requirements of the Code and applicable law.
I have disclosed to you the identity of the Council’s related parties and all related party relationships and transactions of which I am aware.
Impairment review
To the best of my knowledge, there is nothing to indicate that there is a permanent reduction in the recoverable amount of the property, plant and
equipment below their carrying value at the balance sheet date. An impairment review is therefore not considered necessary.
25
APPENDIX ADRAFT MANAGEMENT REPRESENTATION LETTER (CONTINUED)
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
Future commitments
I am not aware of any plans, intentions or commitments that may materially affect the carrying value or classification of assets and liabilities or give rise
to additional liabilities.
Subsequent events
I confirm all events subsequent to the date of the financial statements and for which the Code and applicable law, require adjustment or disclosure have
been adjusted or disclosed.
Should further material events occur after the date of this letter which may necessitate revision of the figures included in the financial statements or
inclusion of a note thereto, I will advise you accordingly.
Going concern
To the best of my knowledge there is nothing to indicate that the Council will not continue as a going concern in the foreseeable future. The period to
which I have paid particular attention in assessing the appropriateness of the going concern basis is not less than twelve months from the date of
approval of the accounts.
Yours sincerely
Clive Palfreyman
Executive Director of Finance and Resources, Section 151 Officer
26
APPENDIX ADRAFT MANAGEMENT REPRESENTATION LETTER (CONTINUED)
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
Independent auditor’s report to the members of London Borough of Hounslow
Report on the financial statements
Opinion on the financial statements of London Borough of Hounslow
We have audited the financial statements of London Borough of Hounslow (‘the Council’) for the year ended 31 March 2019, which comprise the
Comprehensive Income and Expenditure Statement, the Movement in Reserves Statement, the Balance Sheet, the Cash Flow Statement and notes to
the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.
In our opinion, the financial statements:
• give a true and fair view of the financial position of London Borough of Hounslow as at 31 March 2019 and of its expenditure and income for the year
then ended; and
• have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom
2018/19.
Opinion on the financial statements of London Borough of Hounslow Pension Fund
We have audited the financial statements of London Borough of Hounslow Pension Fund (‘the Pension Fund’) for the year ended 31 March 2019, which
comprise the Fund Account, the Net Assets Statement and notes to the financial statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority
Accounting in the United Kingdom 2018/19.
In our opinion the financial statements:
• give a true and fair view of the financial transactions of London Borough of Hounslow Pension Fund during the year ended 31 March 2019, and the
amount and disposition of the Pension Fund’s assets and liabilities as at 31 March 2019; and
• have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom
2018/19.
Basis for opinions
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities section of our report. We are independent of the Council and the Pension Fund in
accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applicable to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Executive Director of Finance and Resources’ use of the going concern basis of accounting in the preparation of the Council’s and the Pension
Fund’s financial statements is not appropriate; or
• the Executive Director of Finance and Resources has not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the Council’s or the Pension Fund’s ability to continue to adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are authorised for issue.
Other information
The Executive Director of Finance and Resources is responsible for the other information. The other information comprises the information included in
the Statement of Accounts, other than the financial statements and our auditor’s report thereon. Our opinions on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
27
APPENDIX BDRAFT AUDITOR’S REPORT
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of the Executive Director of Finance and Resources for the financial statements
As explained more fully in the Statement of the Executive Director of Finance and Resources’ Responsibilities, the Executive Director of Finance and
Resources is responsible for the preparation of the Statement of Accounts, which includes the Council’s and Pension Fund’s financial statements, in
accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19, and
for being satisfied that they give a true and fair view. The Executive Director of Finance and Resources is also responsible for such internal control as
the Executive Director of Finance and Resources determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
The Executive Director of Finance and Resources is required to comply with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the
United Kingdom 2018/19 and prepare the financial statements on a going concern basis, unless the Council is informed of the intention for dissolution
without transfer of services or function to another entity. The Executive Director of Finance and Resources is responsible for assessing each year
whether or not it is appropriate for the Council and the Pension Fund to prepare the accounts on the going concern basis and disclosing, as applicable,
matters related to going concern.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the Council’s and Pension Fund’s financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Matters on which we are required to report by exception under the Code of Audit Practice
We are required by the Code of Audit Practice to report to you if:
• we issue a report in the public interest under section 24 of the Local Audit and Accountability Act 2014;
• we make a recommendation under section 24 of the Local Audit and Accountability Act 2014; or
• we exercise any other special powers of the auditor under sections 28, 29 or 31 of the Local Audit and Accountability Act 2014.
We have nothing to report in these respects.
Conclusion on London Borough of Hounslow’s arrangements for securing economy, efficiency and effectiveness in the use of resources
Conclusion
On the basis of our work, having regard to the guidance on the specified criterion issued by the Comptroller and Auditor General in November 2017, we
are satisfied that, in all significant respects, London Borough of Hounslow has put in place proper arrangements to secure economy, efficiency and
effectiveness in its use of resources for the year ended 31 March 2019.
28
APPENDIX BDRAFT AUDITOR’S REPORT (CONTINUED)
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
Basis for conclusion
We have undertaken our review in accordance with the Code of Audit Practice issued by the Comptroller and Auditor General, having regard to the
guidance on the specified criterion issued in November 2017, as to whether the Council had proper arrangements to ensure it took properly informed
decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. The Comptroller and Auditor General
determined this criterion as that necessary for us to consider in satisfying ourselves whether the Council put in place proper arrangements for securing
economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2019.
We planned our work in accordance with the Code of Audit Practice. Based on our risk assessment, we undertook such work as we considered
necessary to form a view on whether, in all significant respects, the Council had put in place proper arrangements to secure economy, efficiency and
effectiveness in its use of resources.
Responsibilities of the Council
The Council is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure
proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements.
Auditor’s responsibilities for the review of arrangements for securing economy, efficiency and effectiveness in the use of resources
We are required under section 20(1)(c) of the Local Audit and Accountability Act 2014 to satisfy ourselves that the Council has made proper
arrangements for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice requires us to report to you our
conclusion relating to proper arrangements. We are not required to consider, nor have we considered, whether all aspects of the Council’s arrangements
for securing economy, efficiency and effectiveness in its use of resources are operating effectively.
Use of the audit report
This report is made solely to the members of London Borough of Hounslow, as a body, in accordance with part 5 of the Local Audit and Accountability
Act 2014 and as set out in paragraph 44 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit
Appointments Limited. Our audit work has been undertaken so that we might state to the members of the Council those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the members of the Council, as a body, for our audit work, for this report, or for the opinions we have formed.
Certificate
Delay in certification of completion of the audit
We certify that we have completed the audit of London Borough of Hounslow in accordance with the requirements of the Local Audit and Accountability
Act 2014 and the Code of Audit Practice.
Lucy Nutley
For and on behalf of Mazars LLP
Tower Bridge House
St Katharine’s Way
London
E1W 1DD
[Date]
29
APPENDIX BDRAFT AUDITOR’S REPORT (CONTINUED)
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
As part of our ongoing risk assessment we monitor our relationships with you to identify any new actual or perceived threats to our
independence within the regulatory or professional requirements governing us as your auditors.
We can confirm that no new threats to independence have been identified since issuing the Audit Strategy Memorandum and therefore
we remain independent.
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APPENDIX CINDEPENDENCE
Executive summary Significant findings Summary of misstatements Value for Money conclusion Appendices
Stuart Frith
Senior Manager
Phone: +44 (0)20 7063 4409
Mobile: +44 (0)770 998 2774
Email: [email protected]
CONTACT
Lucy Nutley
Director
Phone: +44(0)20 7063 4634
Mobile: +44(0)738 724 2052
Email: [email protected]