Independent auditors ‘not entirely clear’ how Surrey council will know exactly how much it has in its accounts

A report has found “significant weaknesses” in how Guildford Borough Council manages its finances which may have a ripple effect on its bank statements.

Yearly financial accounts of public organisations are reviewed by auditors to ensure their finances are in order.

Guildford council’s accounts for 2022/23 and 2023/24 have been checked by specialist finance firm Grant Thornton.

Councillors heard auditors intend to issue Guildford council a disclaimer of opinion for the accounts for 2022/23 2023/24, at an Audit and Scrutiny meeting on February 20.

This means Grant Thornton will not comment on the local authority’s accounts because they have not been able to see enough evidence to be assured the financial statements are accurate.

The disclaimer opinion will have a ripple effect on the future auditing of accounts as the council cannot be confident precisely how much money it has.

“Unfortunately, you will get a disclaimer opinion next year and it will keep going through,” Paul Cuttle from Grant Thornton told the committee.

But with the work of the council and officers during the next year, making the recommended changes, meaning assurance can be built to increase confidence.

“We’re not entirely clear at the moment how to get out of the scenario we’re in,” said Mr Cuttle.

He said the issue will require government and stakeholder involvement to “decide on some things” which could include a kind of “statutory override” to just accept the number on the accounts as correct.

The audit assessments highlighted five major issues in the 2022/23 and 2023/24 accounts.

These included: funding gaps in financial planning, pervasive weakness in internal controls impacting services, serious weakness in final account processing, failure to improve the housing service and significant failure and financial loss in managing contractors for improvement.

The last checks and balances of the council’s finances were made in 2020/21, not putting Guildford in the strongest position against two years of unaudited accounts.

The following accounts of 2022/23 and 2023/24 saw the fraud investigation which shook the council to its core with a £8.7m overspend which had to be balanced by reserves.

Councillors recognised many of these issues have been highlighted in the council’s independent improvement plan and were confident Guildford was working through them.

These included strengthening controls of the finance team, reviewing policies and budgets.

Councillor George Potter called out the audits as “hindsight being 20/20”, pointing out the holes which had already been highlighted from the council’s independent report after the fraud scandal.

But Paul Cuttle clarified audit statements are typically done retrospectively and previous audits from 2019/20 and 2020/21 had pointed out issues of financial capacity, issues with documentation and reserves.

The report said: “The audit team encountered significant challenges in auditing the council’s accounting records for 2023/24.

“We were not provided with all the relevant information we required to be able to conclude our work in line with the auditing standards.

“The underlying records that support the accounts were inadequate, and there was a lack of finance team capacity to support the audit process, resolve audit matters and queries.

“This is a weakness in the council’s finances team that needs to be addressed going forward.”

Looking ahead, Chief Finance Officer Richard Bates said the audit “gives us now hopefully a better starting point for the 2024/25 accounts […] and hopefully the process will go a lot smoother”.

He said the council had suffered a high turnover of staff on the finance team recently which made the auditing operation difficult.