To receive a report from the Council’s External Auditor, Grant Thornton UK.

The Committee received a report of Trafford’s External Auditor, Grant Thornton LLP, highlighting the key matters arising from their audit of Trafford Council's financial statements for the year ending 31 March 2018. The report highlighted audit findings against significant risks, accounting policies, estimates and judgements, internal controls, misclassifications and disclosure changes.

Members were advised that the audit was not yet complete due to an issue concerning the Council’s LOBO loan. Although a formal opinion could not be provided due to the outstanding issue with the loan, the External Auditor felt that the issue statement had been completed to a good standard and had been completed by the new deadline. The query relating to the LOBO loan also meant that a Value for Money (VfM) conclusion could not be provided, but the External Auditor emphasised there were no other issues in relation to VfM. No changes had been made to the financial bottom line as a result of the audit adjustments.

The Chief Finance Officer provided further information in relation to the LOBO loan, which meant that the annual statement of accounts for the year could not be approved at this time. The issue related to a £20m loan taken by the Council in 2010, which had been accounted for in the same way annually with no issues since that time. This year it had been suggested that the loan should be re-categorised, which would change its status from a loan to a financial instrument. This was a national issue, affecting 10 Local Authorities in the country. This re-categorisation would require for the loan to be accounted for differently, and the Council would need to set aside £23.5m in the budget – funds already allocated to offset other risks.

The Council disagreed with the assessment of the LOBO loan and had sought external advice. Of the three external auditors involved with the 10 authorities who had encountered this issue, two had disagreed with the assessment and had provided an audit opinion for the respective Authorities’, which in turn allowed for their accounts to be approved. Grant Thornton were yet to take a decision, but had also sought external technical advice. The Chief Finance Officer did not plan on adjusting the accounts at this time until advice had been received.

In the event that the advice received by Grant Thornton was favourable and a satisfactory audit opinion was given, the Chief Finance Officer asked that the Accounts and Audit Committee delegate the approval of the accounts to the Chairman of the Committee. The Committee were also asked to delegate the signing of the letter of representation to the Chief Finance Officer if the issue was resolved.

In the event that the advice received was not favourable, meaning the Council would be asked to re-categorise the LOBO loan as a financial instrument, the Council would then approach central government to apply for a statutory override (i.e. to request that the Council be exempt from this situation). Members were advised that this could take a considerable amount of time to obtain. If this was unsuccessful and all avenues had been explored, the accounts would need to be qualified. In this event an emergency meeting of the Accounts and Audit Committee would need to be convened to consider the statement of accounts.

The Committee recognised that the situation was unfortunate, but all Members agreed to the proposed pathway.

RESOLVED:

1)    In the event that the accounting issue was resolved and the LOBO loan could be accounted for in the usual way, the Committee agreed to delegate the approval of the annual statement of accounts to the Chairman of the Committee, and to delegate the signing of the letter of representation to the Chief Finance Officer.

2)    In the event that the accounting issue is not resolved, with the LOBO loan considered a financial instrument and a statutory override not obtained from central government, an emergency meeting of the Accounts and Audit Committee be convened to consider qualification of the accounts.