Agenda item

The Deputy Leader and Cabinet Member for Finance was in attendance for this item

1.     The item was introduced by Lucy Nutley, from Grant Thornton. Ms Nutley confirmed that the audit was complete and the opinion would be unmodified.  No adjustment to the accounts other than disclosure errors had been identified.

2.     Ms Nutley confirmed that the Value for Money was complete and significant weaknesses in the arrangements for ensuring financial sustainability arising from the high spends in Adult Social Care had been identified. No special auditor powers had been used during the audit year.

3.     Materiality had been assessed at £55.5 million for the Council based benchmark of gross revenue expenditure.  This figure did not change on receipt of the draft financial statements.

4.     Significant risks identified as part of the audit work included:

                a) Management override of controls (a standard risk in every audit and not specific to Kent) and nothing had been identified by the external auditors which required reporting.

b)The risk of fraud and error and revenue recognition (another standard risk) but auditors were about to rebut the risk where it was considered the inherent risk to be low.  Grant Thornton rebutted the risk at the planning stage and nothing had been identified to change this conclusion.

                c)  The risk of fraud and error and expenditure recognition was purely focused in the public sector and nothing had been identified by the auditors.

                d) Land building and investment property valuation was primarily assessed as a significant risk due to being subject to a high estimation. No issues arose from this.

                e) Pensions accounting is also a risk due to the high values involved and management engaged the services of an Actuary to provide an evaluation of the Council’s share of the Kent Pension Fund.  Expert advice was obtained from Pricewaterhouse Coopers (PwC) to provide assurance over the assumptions used by the Actuary and there were no issues arising from the work and value of the pension liability.

                f)  In relation to IFRS 16, auditors identified good processes in place for the implementation of the new standard.  It was previously identified as a significant risk but as the value was not material to the financial statement (as previously anticipated) this would drop off as a significant risk for the next year.

5.     Ms Nutley confirmed that as part of the 2025/26 work, there could be a

        detailed review of the aged debt listing of the Adult Social Care debts

        taken in conjunction with the Authority.

6.     It had been agreed by both management and Grant Thornton that the

        unadjusted misstatements were immaterial, and the decision had been

        made not to adjust the financial statements for these figures. The

        differences were drawn to Members’ attention and included in the Letters

        of Representation, which would be signed.

7.     In answer to Member questions and comments the following was said:

        a)     It had been agreed between Grant Thornton and Finance that the Adult Social Care debt would be reviewed in detail.

        b)     Ms Nutley explained that Grant Thornton used benchmark figures to calculate the Adult Social Care debt.  These figures were based on a range of local authorities providing Adult Social Care and the figures used by the Finance team were more Kent specific.  The aim was to go through the data to establish historically what had, and had not, been recovered to determine whether the percentage was reasonable.

        c)     The Head of Finance Operations, Mrs Cath Head, confirmed that the Council looked at default rates across different data points, which showed consistency over the past 3 to 4 years at approximately 7%. Bad debt write offs were also reviewed and equated to around 3% of bad debt provision.  Although annual reviews were conducted, Grant Thornton and the Finance team would work together to resolve the difference as part of the 2025/26 audit work.

        d)     In connection with school finances and bank reconciliations whilst this had been raised in previous years, Ms Nutley confirmed that there had been a huge improvement, and the adjusted difference was lower this financial year due to the timing of the instructions sent out to schools.

        e)     In relation to the Dedicated Schools Grant, it was explained to Members that as part of Grant Thornton’s assessment, all audited Councils were placed into 1 of 3 “boxes” (or informal categories):

                               i)        Box 1 where the deficit was so low, it was almost

                                         immaterial.

                               ii)        Box 2 which recognised that the Council had measures in place to mitigate their situation.

                               iii)       Box 3 where the auditors had taken statutory action as the Authority had not taken any form of appropriate action. 

        f)      Kent, like most of the Local Authorities audited by Grant Thornton,

                was in box 2.  Mr Dossett commented that it was difficult to advise

                Kent on the next steps due to the national position and it was

                recognised that Central Government was yet to provide a solution,

                however the efforts Kent County Council had made in 2024/25 and

                2025/26 were recognised. It was confirmed that the auditors were

                not minded to take any further action, at this juncture.

        g)     Mr Dossett explained that, in relation to the Adult Social Care debt,

                a statutory recommendation would be issued if the debt started to

                impact the financial sustainability of the Council. Approximately half

                a dozen statutory recommendations were either issued, or in

                progress nationally, for the 2024/25 round of audits, many of which

                were around historical debts although some were around the

                Authority’s inability to manage the in-year financial position and the

                threat to reserves. It was explained to Members that when the Adult

                Social Care debt started to threaten reserves in a material way, the

                auditors would consider the use of statutory powers.

        h)     Members were reminded that the auditors could exercise

                statutory powers at any point and were not restricted to an annual

                process.  The monitoring of the Council’s financial performance was

                ongoing work and Grant Thornton would continue to offer

                commentary, as they saw appropriate.

8.     RESOLVED that Members NOTED the Audit Findings Report (AFR) for

        Kent County Council and the Kent Pension Fund.