The Annual Audit Letter for
South Downs National Park Authority
Year ended 31 March 2019
October 2019
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Contents
Section Page
1. Executive Summary 3-4
2. Audit of the Financial Statements 5-9
3. Value for Money conclusion 10-12
Appendices
A Reports issued and fees
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Executive Summary
Purpose
Our Annual Audit Letter (Letter) summarises the key findings arising from the
work that we have carried out at South Downs National Park (‘the Authority’)
for the year ended 31 March 2019.
This Letter is intended to provide a commentary on the results of our work to
the Authority and external stakeholders, and to highlight issues that we wish
to draw to the attention of the public. In preparing this Letter, we have
followed the National Audit Office (NAO)'s Code of Audit Practice and Auditor
Guidance Note (AGN) 07 'Auditor Reporting'. We reported the detailed
findings from our audit work to the Authority's Policy and Resources
Committee as those charged with governance in our Audit Findings Report
18 July 2019.
Respective responsibilities
We have carried out our audit in accordance with the NAO's Code of Audit Practice,
which reflects the requirements of the Local Audit and Accountability Act 2014 (the
Act). Our key responsibilities are to:
give an opinion on the Authority's financial statements (section two)
assess the Authority's arrangements for securing economy, efficiency and
effectiveness in its use of resources (the value for money conclusion) (section
three).
In our audit of the Authority's financial statements, we comply with International
Standards on Auditing (UK) (ISAs) and other guidance issued by the NAO.
Materiality We determined materiality for the audit of the Authority's financial statements to be £246,000, which is 2% of the Authority's
gross revenue expenditure.
Financial Statements opinion We gave an unqualified opinion on the Authority's financial statements on 31 July 2019.
Whole of Government Accounts
(WGA)
We completed work on the Authority’s consolidation return following guidance issued by the NAO.
Use of statutory powers We did not identify any matters which required us to exercise our additional statutory powers.
Our work
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Executive Summary
Working with the Authority
During the year we have delivered a number of successful outcomes with
you:
We made 5 recommendations for controls and systems improvements in
our Action Plan as reported to the Policy and Resources Committee in
July 2019. Implementation of these recommendations will be followed up
with your finance team in the 2019/20 year;
Sharing our insight we provided regular audit committee updates
covering best practice. We also share our thought leadership reports
We would like to record our appreciation for the assistance and co-operation
provided to us during our audit by the Authority's staff.
Grant Thornton UK LLP
August 2019
Value for Money arrangements We were satisfied that the Authority put in place proper arrangements to ensure economy, efficiency and effectiveness in its use
of resources. We reflected this in our audit report to the Authority on 31 July 2019.
Certificate We certified that we have completed the audit of the financial statements of South Downs National Park Authority in accordance
with the requirements of the Code of Audit Practice on 31 July 2019.
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Audit of the Financial Statements
Our audit approach
Materiality
In our audit of the Authority's financial statements, we use the concept of
materiality to determine the nature, timing and extent of our work, and in
evaluating the results of our work. We define materiality as the size of the
misstatement in the financial statements that would lead a reasonably
knowledgeable person to change or influence their economic decisions.
We determined materiality for the audit of the Authority’s financial statements
to be £246,000, which is 2% of the Authority’s gross revenue expenditure.
We used this benchmark as, in our view, users of the Authority's financial
statements are most interested in where the Authority has spent its revenue
in the year.
We set a lower threshold of £13,000, above which we reported errors to the
Policy and Resources Committee in our Audit Findings Report.
The scope of our audit
Our audit involves obtaining sufficient evidence about the amounts and disclosures in
the financial statements to give reasonable assurance that they are free from material
misstatement, whether caused by fraud or error. This includes assessing whether:
the accounting policies are appropriate, have been consistently applied and
adequately disclosed;
the significant accounting estimates made by management are reasonable; and
the overall presentation of the financial statements gives a true and fair view.
We also read the remainder of the financial statements and the Narrative Report and
Annual Governance Statement published alongside the financial statements to check
it is consistent with our understanding of the Authority and with the financial
statements included in the Annual Report on which we gave our opinion.
We carry out our audit in accordance with ISAs (UK) and the NAO Code of Audit
Practice. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Our audit approach was based on a thorough understanding of the Authority's
business and is risk based.
We identified key risks and set out overleaf the work we performed in response to
these risks and the results of this work.
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Audit of the Financial Statements
Significant Audit Risks
These are the significant risks which had the greatest impact on our overall strategy and where we focused more of our work.
Risks identified in our audit plan How we responded to
the risk
Findings and conclusions
The revenue cycle includes fraudulent
transactions
Under ISA (UK) 240 there is a rebuttable presumed
risk that revenue may be misstated due to the
improper recognition of revenue.
This presumption can be rebutted if the auditor
concludes that there is no risk of material
misstatement due to fraud relating to revenue
recognition. We initially rebutted this risk for revenue
as a whole as reported in our audit plan, however on
further analysis of the fees, charges and other service
income we identified recognition of these revenues and
associated receivables at they year end as a
significant risk at the start of our fieldwork. The risk
particularly related to the complexity of recognition and
ensuring correct period cut off for fees charges and
other service income which we concluded was in fact a
significant risk of material misstatement.
We identified recognition of Section 106 revenues as a
risk in our audit plan and we have combined this with
this risk. Note recognition of several key revenues in
year is by release of deferred contribution revenues to
match related expenditure. Therefore the risk further
relates to associated payables (deferred revenues) at
the year end.
Our work included:
substantive sample
based testing of fees,
charges and other
service income. This
included specifically a
sample across Section
106 and Community
Infrastructure Levy (CIL)
income;
- revenue cut off testing of
a sample of revenue
entries in the General
Ledger to ensure they
had been accounted for
in the correct period.
In our testing of CIL and Section 106 revenues we found 4 cut off accounting
errors resulting in one adjustment to the accounts and 2 errors which are
below performance materiality and remain unadjusted:
- An adjusted error of £312k where revenues in 2018/19 were understated;
- An adjusted error of £130k where revenues which should have been
recognised in previous periods were recognised in the 2018/19 period.
These historic Section 106 agreement contributions had been missed
entirely from the accounts in those previous periods;
- An unadjusted error in the brought forward deferred revenues which
meant in year 2018/19 revenues were overstated by £134k;
- An unadjusted error in deferred revenues which meant in year 2018/19
revenues were understated by £78k.
After adjustment of these errors we were satisfied that revenues were
materially correctly stated.
We have made 3 recommendations to improve controls as follows:
- We recommended that a review of Section 106 agreement terms is made
to confirm which agreements do include fund claw back terms and to
ensure that the revenues are correctly accounted for in line with the
agreement terms.
- We recommended that a clear register/schedule of Section 106
agreements is maintained and regularly reconciled to the general ledger.
- We recommended that a review of CIL agreements are made to ensure
that revenue is recognised upon commencement of development.
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Audit of the Financial Statements
Significant Audit Risks - continued
These are the risks which had the greatest impact on our overall strategy and where we focused more of our work.
Risks identified in our audit plan How we responded to the risk Findings and conclusions
Valuation of land and buildings (Annual revaluation)
The Authority revalues its other land and buildings (ie. the
South Downs Centre) on an annual basis to ensure that the
carrying value is not materially different from the current
value at the financial statements date. This valuation
represents a significant estimate by management in the
financial statements due to the size of the number involved
and the sensitivity of this estimate to changes in key
assumptions. Management engage the services of a
professional valuer each year to estimate the current value of
this asset as at 31/03/2019. 100% of land and buildings were
revalued during 2018/19.
We therefore identified valuation of land and buildings,
particularly revaluations and impairments, as a significant
risk, which was one of the most significant assessed risks of
material misstatement, and a key audit matter.
Our work included:
evaluating management's process and assumptions
for the calculation of the estimate, the instructions
issued to the valuation experts and the scope of their
work;
evaluating the competence, capabilities and objectivity
of the valuation expert;
writing to the valuer to confirm the basis on which the
valuation was carried out;
challenging the information and assumptions used by
the valuer to assess completeness and consistency
with our understanding;
testing the revaluation made during the year to ensure
it was input correctly into the Authority's asset register;
We concluded:
management’s valuation expert was clearly
competent, capable and objective;
management's processes and assumptions for
the calculation of the estimate, the instructions
issued to the valuation experts and the scope of
their work were adequate;
the assumptions and information used by the
valuer were reasonable;
the judgement’s underlying the estimate were
discussed and challenged and we concluded
that they are reasonable;
there was no change to the valuation method in
the 2018/19 year and the EUV revaluation
measurement base is consistent with other
similar public sector bodies;
the estimate is clearly disclosed in the financial
statements.
Our audit work did not identify any issues in respect
of valuation of land and buildings.
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Audit of the Financial Statements
Significant Audit Risks - continued
These are the risks which had the greatest impact on our overall strategy and where we focused more of our work.
Risks identified in our audit plan How we responded to the risk Findings and conclusions
Valuation of pension fund net liability
The Authority's pension fund net liability,
as reflected in its balance sheet as the net
defined benefit liability, represents a
significant estimate in the financial
statements.
The pension fund net liability is considered
a significant estimate due to the size of the
numbers involved and the sensitivity of the
estimate to changes in key assumptions.
We therefore identified valuation of the
Authority’s pension fund net liability as a
significant risk, which was one of the most
significant assessed risks of material
misstatement, and a key audit matter.
Our work included:
documenting our understanding of the process and controls put
in place by management to ensure that the Authority’s pension
fund net liability is not materially misstated and evaluating the
design of the associated controls;
liaising with the auditors of West Sussex Pension Fund to
evaluate the instructions and accuracy/completeness of
information issued by the Pension Fund to their management
expert (actuary Hymans Robertson) for this estimate and the
scope of the actuary’s work;
assessing the competence, capabilities and objectivity of the
actuary who carried out the pension fund valuation;
testing the consistency of the pension fund asset and liability
and disclosures in the notes to the core financial statements
with the actuarial report from the actuary;
undertaking procedures to confirm the reasonableness of the
actuarial assumptions made by reviewing the report of the
consulting actuary (as auditor’s expert) and performing
additional focussed audit procedures suggested within the
report; and
obtaining assurances from the auditor of West Sussex Pension
Fund as to the controls surrounding the validity and accuracy of
membership data; contributions data and benefits data sent to
the actuary by the pension fund and the fund assets valuation in
the pension fund financial statements.
Due to national developments around public sector pensions
(see page 9 for more detail) we were required to carry out more
extensive work to challenge the actuary’s estimate of the
potential liability for McCloud and Guaranteed Minimum
Pensions. An initial estimate had been provided by the pension
fund administering authority, but this was not considered
sufficiently accurate to conclude on the issue of materiality and
therefore the suitable treatment of the estimated liability.
Therefore we requested an updated estimate verified by the
actuary and reviewed the method and assumptions made in
coming to this estimate.
In completing this work we were able to conclude that the
potential additional liabilities were not material and therefore
the pension fund net liability in the accounts was materially
correctly stated.
Our audit work did not identify any further issues in respect of
the pension fund net liability.
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Audit of the Financial Statements
Audit opinion
We gave an unqualified opinion on the Authority's financial statements on 31
July 2019.
Preparation of the financial statements
The Authority presented us with draft financial statements in accordance with
the national deadline, and provided a good set of working papers to support
them. The finance team responded promptly and efficiently to our queries
during the course of the audit.
Issues arising from the audit of the financial statements
We reported the key issues from our audit to the Authority’s Policy and
Resources Committee on 18 July 2019.
We identified 3 significant adjustments to the Authority’s draft accounts
during the audit from the work on risks documented above. These led to
further investigatory work to confirm the extent of the errors, and we then
issues control/system recommendations to address the underlying causes of
these errors.
During the 2018/19 financial year there were two significant cases relating to
pensions liabilities:
(a) the McCloud case relating to the Court of Appeal ruling that there was
age discrimination in certain public sector pension schemes where there
were transitional protections given to scheme members.
(b) The GMP case relating to the High Court ruling that GMPs must be
equalised between men and women and that past underpayments must
be corrected
Our view is that both cases give rise to a past service cost and liability within
the scope of IAS 19, and therefore these developments required a significant
amount of additional work to gain assurance that the net pension liability
reflected in the financial statements was materially complete.
Annual Governance Statement and Narrative Report
We are required to review the Authority’s Annual Governance Statement and
Narrative Report. It published them on its website alongside the Statement of
Accounts in line with the national deadlines.
Both documents were prepared in line with the CIPFA Code and relevant supporting
guidance. We confirmed that both documents were consistent with the financial
statements prepared by the Authority and with our knowledge of the Authority.
Whole of Government Accounts (WGA)
We carried out work on the Authority’s Data Collection Tool in line with instructions
provided by the NAO . We issued an assurance statement which confirmed the
Authority was below the audit threshold.
Certificate of closure of the audit
We certified that we have completed the audit of the financial statements of the
Authority in accordance with the requirements of the Code of Audit Practice on 31 July
2019.
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