The Annual Audit Letter for

South Downs National Park Authority

Year ended 31 March 2019

October 2019

Agenda Item 9 Report PR19/20-20 Appendix 1

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

Agenda Item 9 Report PR19/20-20 Appendix 1

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.

Agenda Item 9 Report PR19/20-20 Appendix 1

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.

Agenda Item 9 Report PR19/20-20 Appendix 1

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.

Agenda Item 9 Report PR19/20-20 Appendix 1

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.

Agenda Item 9 Report PR19/20-20 Appendix 1

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.

Agenda Item 9 Report PR19/20-20 Appendix 1

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.

Agenda Item 9 Report PR19/20-20 Appendix 1

Value for Money conclusion

Background

We carried out our review in accordance with the NAO Code of Audit

Practice, following the guidance issued by the NAO in November 2017 which

specified the criterion for auditors to evaluate:

In all significant respects, the audited body takes properly informed decisions

and deploys resources to achieve planned and sustainable outcomes for

taxpayers and local people.

Key findings

Our first step in carrying out our work was to perform a risk assessment and

identify the risks where we concentrated our work.

The risks we identified and the work we performed are set out overleaf.

Overall Value for Money conclusion

We are satisfied that in all significant respects the Authority put in place proper

arrangements to secure economy, efficiency and effectiveness in its use of

resources for the year ending 31 March 2019.

Agenda Item 9 Report PR19/20-20 Appendix 1

Value for Money conclusion

Value for Money Risks

Risks identified in our audit plan How we responded to the

risk

Findings and conclusions

Medium Term Financial Resilience

For the 2018/19 financial year the Authority

set a gross revenue budget of £12.065m

with a small £0.104m contribution to

reserves. The reported outturn showed that

the Authority achieved a below budget (a

net income/surplus) position of £0.369m.

This performance has allowed the general

fund balance to grow from £5.119m to

£5.723m.

A refreshed Medium Term Financial

Strategy was presented to the March

Authority meeting. The current Medium

Term Financial Strategy forecasts that the

Authority will achieve a surplus each year

from 2018/19 through to 2021/22.

Our risk assessment suggested that the

Authority is well managed in terms of

medium term financial resilience. Due to

the clear financial challenges across the

public sector and also our lack of

cumulative knowledge of your financial

planning processes we identified the

Authority’s Medium Term Financial

Resilience as a Value for Money risk area.

We have carried this work out primarily as

a desktop review of the budgeting

processes and assumptions for

reasonableness against our own

knowledge of the wider sector and similar

public sector entities.

As part of our work we have:

1. reviewed the budget

monitoring processes

that the Authority has in

place to ensure that

budgetary performance is

in line with expectations

and to identify and

address any unusual

variances

2. reviewed the overall

framework in place to

ensure financial risk is

managed. This was

through our risk

assessment procedures

where we reviewed the

organisational controls

and discussed the

framework with senior

management and internal

audit to document our

understanding

3. reviewed the methods

and assumptions

underlying the Medium

Term Financial Strategy

through discussion with

officers of the forward

budgeting process and

the key assumptions

made

1. The Policy and Resources Committee is the key budget monitoring mechanism. We reviewed

minutes of the discussions of this Committee during the year and confirmed that budget reports

analysed across each of the four service areas were presented and discussed in detail. Variances on

budget are highlighted along with explanatory commentary. Budget virements, capital outturn, the

reserves position and treasury management are also reported in detail with graphical illustrations of

variances.

Our view was that members of this Committee are kept well informed to fulfil their role in ensuring the

Authority’s funds are used in an economic, efficient and effective way.

2. Risk is monitored at the organisational level through the central corporate risk register which is

reviewed by the Policy and Resources Committee, with more local risk monitoring undertaken by officers

through Directorate and Project level risk registers. We reviewed the Financial Regulations and

Procedures, the Treasury Management Policy and the Annual Investment Strategy and were satisfied that

these are sufficiently detailed and robust to ensure policies are known to officers. Internal Audit carry out

regular reviews which are reported to the Policy and Resources Committee. We have reviewed the work

of Internal Audit and discussed the control environment with them and we were satisfied that the

framework in place to manage financial risk is in line with our expectations for a public sector entity of this

size.

3. The method for building the Medium Term Financial Strategy through to 2022/23 has been to use the

2018/19 detailed budget as a starting point and then to prudently layer on expenditure commitments;

expected changes to revenues; inflationary assumptions and savings plans to reach a 4 year forecast.

The updated Medium Term Financial Strategy reported to the June Policy and Resources Committee

showed a net breakeven position with contributions to reserves each year. The key assumptions implicit

in the 4 year forecast are the Core grant income assumption, Inflationary pay assumptions, income

assumed to stay at the same level as in the 2019/20 budget.

Agenda Item 9 Report PR19/20-20 Appendix 1

A. Reports issued and fees

We confirm below our final reports issued and fees charged for the audit and confirm there were no fees for the provision of non audit services.

Fees

Planned

Actual fees

Statutory audit 10,825 12,325

Total fees 10,825 12,325

Fee variations are subject to PSAA approval.

Reports issued

Report Date issued

Audit Plan

28 February 2019

Audit Findings Report

18 July 2019

Annual Audit Letter

31 October 2019

Audit fee variation

As outlined in our audit plan, the 2018-19 scale fee published by PSAA of

£10,825 assumes that the scope of the audit does not significantly change.

There are a number of areas where the scope of the audit has changed,

which has led to additional work. These are set out in the following table.

Area Reason

Fee

proposed

Assessing the

impact of the

McCloud ruling

The Government’s transitional arrangements

for pensions were ruled discriminatory by the

Court of Appeal last December. The Supreme

Court refused the Government’s application for

permission to appeal this ruling. As part of our

audit we have reviewed the revised actuarial

assessment of the impact on the financial

statements along with any audit reporting

requirements.

£400

Pensions – IAS

The Financial Reporting Authority has

highlighted that the quality of work by audit

firms in respect of IAS 19 needs to improve

across local government audits. Accordingly,

we have increased the level of scope and

coverage in respect of IAS 19 this year to

reflect this.

£400

PPE Valuation –

work of experts

As above, the Financial Reporting Authority

has highlighted that auditors need to improve

the quality of work on PPE valuations across

the sector. We have increased the volume and

scope of our audit work to reflect this.

£700

Total

£1,500

Agenda Item 9 Report PR19/20-20 Appendix 1

Our connections

 We are well connected to MHCLG, the

NAO and key local government networks

 We work with CIPFA, Think Tanks and

legal firms to develop workshops and good

practice

 We have a strong presence across all parts

of local government including blue light

services

 We provide thought leadership, seminars

and training to support our clients and to

provide solutions

Our people

 We have over 25 engagement leads

accredited by ICAEW, and over

250 public sector specialists

 We provide technical and personal

development training

 We employ over 80 Public Sector trainee

accountants

The Local Government economy

Local authorities face unprecedented challenges including:

- Financial Sustainability – addressing funding gaps and balancing needs against resources

- Service Sustainability – Adult Social Care funding gaps and pressure on Education, Housing,

Transport

- Transformation – new models of delivery, greater emphasis on partnerships, more focus on

economic development

- Technology – cyber security and risk management

At a wider level, the political environment remains complex:

- The government continues its negotiation with the EU over Brexit, and future arrangements

remain uncertain.

- We will consider your arrangements for managing and reporting your financial resources as part

of our work in reaching our Value for Money conclusion.

- We will keep you informed of changes to the financial reporting requirements for 2018/19

through on-going discussions and invitations to our technical update workshops.

New

opportunities

and challenges

for your

community

Our quality

 Our audit approach complies with the

NAO's Code of Audit Practice, and

International Standards on Auditing

 We are fully compliant with ethical

standards

 Your audit team has passed all quality

inspections including QAD and AQRT

Grant Thornton in Local

Government

 We work closely with our clients to ensure that we understand their financial challenges,

performance and future strategy.

 We deliver robust, pragmatic and timely financial statements and Value for Money audits

 We have an open, two way dialogue with clients that support improvements in arrangements

and the audit process

 Feedback meetings tell us that our clients are pleased with the service we deliver. We are not

complacent and will continue to improve further

 Our locally based, experienced teams have a commitment to both our clients and the wider

public sector

 We are a Firm that specialises in Local Government, Health and Social Care, and Cross

Sector working, with over 25 Key Audit Partners, the most public sector specialist Engagement

Leads of any firm

 We have strong relationships with CIPFA, SOLCAE, the Society of Treasurers, the Association

of Directors of Adult Social Care and others.

Our

relationship

with our

clients– why are

we best placed?

 Early advice on technical accounting issues, providing certainty of accounting treatments, future

financial planning implications and resulting in draft statements that are 'right first time’

 Knowledge and expertise in all matters local government, including local objections and

challenge, where we have an unrivalled depth of expertise.

 Early engagement on issues, especially on ADMs, housing delivery changes, Children services

and Adult Social Care restructuring, partnership working with the NHS, inter authority

agreements, governance and financial reporting

 Implementation of our recommendations have resulted in demonstrable improvements in your

underlying arrangements, for example accounting for unique assets, financial management,

reporting and governance, and tax implications for the Cornwall Authority companies

 Robust but pragmatic challenge – seeking early liaison on issues, and having the difficult

conversations early to ensure a 'no surprises' approach – always doing the right thing

 Providing regional training and networking opportunities for your teams on technical accounting

issues and developments and changes to Annual Reporting requirements

 An efficient audit approach, providing tangible benefits, such as releasing finance staff earlier

and prompt resolution of issues.

Delivering real

value through:

Our client base

and delivery

 We are the largest supplier of external audit

services to local government

 We audit over 150 local government clients

 We signed 95% of our local government

opinions in 2017/18 by 31 July

 In our latest independent client service

review, we consistently score 9/10 or

above. Clients value our strong interaction,

our local knowledge and wealth of

expertise.

Our technical

support

 We have specialist leads for Public Sector

Audit quality and technical

 We provide national technical guidance on

emerging auditing, financial reporting and

ethical areas

 Specialist audit software is used to deliver

maximum efficiencies

Our commitment to our local government

clients

• Senior level investment

• Local presence enhancing our

responsiveness, agility and flexibility.

• High quality audit delivery

• Collaborative working across the public

sector

• Wider connections across the public sector

economy, including with health and other

local government bodies

• Investment in Health and Wellbeing, Social

Value and the Vibrant Economy

• Sharing of best practice and our thought

leadership.

• Invitations to training events locally and

regionally – bespoke training for emerging

issues

• Further investment in data analytics and

informatics to keep our knowledge of the

areas up to date and to assist in designing a

fully tailored audit approach

Agenda Item 9 Report PR19/20-20 Appendix 1

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member

firms, as the context requires.

Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a

separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one

another and are not liable for one another’s acts or omissions.

grantthornton.co.uk

Agenda Item 9 Report PR19/20-20 Appendix 1