EASTBOURNE Borough Council’s final accounts will not be ready by the statutory deadline because the previous year’s finances have still not been signed off.

The council’s audit committee heard that the authority’s final, audited accounts for 2019/20 will not be ready for publication by the statutory deadline of November 30.

The council’s external auditor Deloitte had  said it could not begin its work on the accounts until it had completed the now long overdue 2018/19 audit.

Speaking at the meeting, Deloitte representative Benjamin Sheriff said:

“Audits are generally predicated on having a complete, properly closed down, properly prepared, properly supported set of financial records at the time of commencement of audit. 

“If things are not done then the timing when they can be moved to is very hard [to arrange] and it has become much harder over this year than before, when it was already been getting very challenging.”

According to Deloitte, the 2018/19 audit process saw significant delays, primarily due to complications in auditing the accounts of Investment Company Eastbourne (ICE) – an arm’s-length company owned and operated by the council. 

The council, however, maintains that issues with when Deloitte could provide resources prevented a resolution being reached sooner.

One aspect of ICE’s accounts have come in for particular scrutiny by Deloitte, that being a property deal in Leicester.

In a report, a Deloitte representative said:

“The council (through its subsidiary, ICE), agreed to provide certain guarantees with respect to a loan taken out in relation to a property investment in Leicester. 

“This property is owned and operated by a third party. The guarantee is two-fold, in that ICE (and the council) are guaranteeing the repayments of the bank borrowings by the third party, and also a certain level of rental income through the property. 

“The council has also purchased a related option to buy up to 49 per cent of the share capital of the property company for £1 at any time, and gains the rights to 100 per cent of the share capital should there be an event of default. 

“This is a complex arrangement, and the financial statement risks include the potential for the accounting treatment to be incorrect. 

“Additionally, we have identified a significant Value for Money risk in relation to the governance and informed decision making with regards to this significant and unusual transaction.”

After scrutiny of this transaction, the council was told to reduce its original year-end reserve position by around £1m. Officers however described this as an “accounting treatment” as the council had already received £2m from the deal.

Deloitte did not identify any significant value for money risks in the overall 2018/19 accounts, although it made several high priority recommendations for the council.

These included a recommendation for the council to look into whether it should put in place additional controls on decision making around “commercial, innovative or otherwise significant or unusual transactions”.

Deloitte says it has still not received all of the information it needs to complete its  2018/19 audit, but it says its work on ICE issue is now “substantially complete” and expects to issue an unqualified audit opinion once this has been resolved. 

But the auditor maintains that it cannot move ahead with the 2019/20 audit until this work is done. 

This saw criticism from several councillors who feared a repeat of the long delays seen in this year’s accounts.

This view was not shared by Conservative group Cllr Robert Smart, who attributed the issues around the 2018/19 audit to the council’s own financial management.  

He said:

“Don’t blame Deloitte for the lack of preparedness at the beginning of the audit.

“You will see in [the report] that there were nine items that were missing from the start of the [18/19] audit and there are recommendations for improving financial processes, a motion which was voted down in the full council meeting last week.” 

He said he had also recommended that the auditor’s advice be sought when the Leicester property deal was first proposed in July 2017 and said this had not been done.

Other councillors criticised Deloitte, however, arguing that much of the information for the 2019/20 audit had been available ahead of time and could have begun despite the 2018/19 audit remaining outstanding.

Committee chairman Cllr Dean Sabri (Lib Dem) said:

“I don’t want to speak for the whole committee or for you Cllr Smart, but I don’t think any of us would want to be discussing the 19/20 accounts as we approach 2022 and that is what I envision at the moment. 

“I am not an accountant, but I can’t quite see why once we’ve got the issues ironed with ICE ironed out that can’t be replicated in the 19/20 account and we can get this signed off ahead of the 20/21 accounts being submitted.

“Personally I think we as a committee should be able to pass a motion to call for the 19/20 submission of the council  with an audited statement from Deloitte [to be] back to us by the end of January.” 

While Mr Sheriff said this would categorically not be possible, such a motion was agreed by the committee regardless.