External audit Director Richard Lee and Audit Manager Josh Parkinson from KPMG presented their report on the external audit of the financial statements 2023/24 of the Authority and explained that the audit was fundamentally complete with the outstanding matters noted in the report and that there had been no adjustment to risk ratings since the last time the Committee were shown the report but that the final disclosures, consistency check and quality review were yet to be undertaken.

The external auditor explained that there was one significant outstanding matter regarding new information on pension assets in the financial statements concerning whether it was correct to have made an adjustment to the prior year statements  or whether it was qualitatively immaterial. The outcome of an upcoming meeting of the National Audit Office Technical Group will inform how this matter is dealt with by SYPA.

Members asked for clarity on the control deficiency finding in the report concerning management review of actuarial assumptions.

The external auditors explained that this internal management review control by SYPA did not meet the very strict control requirements as devised by the revised ISA315 auditing standards because it does not allow for objective criteria for review by a third party expert. The audit director explained that he is obliged to bring it to the attention of the Committee in this first report and will continue to monitor the situation. The Authority’s Director advised members that this was essentially a conflict of auditing standards and local government accounting. Management are satisfied with the assumptions of an expert external actuary and would not consider it value for money to audit the external actuary, as would be required by ISA315, and are thus comfortable with not meeting this control as defined by auditing standards. KMPG confirmed the impact of not meeting this standard was qualitatively immaterial and it was the role of the Authority to be satisfied with the submission of the accounts as prepared.

The Committee questioned why the irrecoverable VAT expense incurred in this year was not identified as a significant deficiency. The external auditor explained that the cost was the result of a one-off piece of work relating to Project Chip that will not need to be repeated. The Head of Finance confirmed that this was a one-off issue that was identified and resolved with specialist VAT advice. This is partly due to the unique arrangements of the Authority and the Fund and the VAT position was currently being reviewed with a view to moving to a more standard arrangement for VAT recovery

Members queried the fee variation to cover additional work regarding ISA315r and why the charge was put to this year rather than the previous year.

The external auditor explained that, as the additional work had not been factored into the standard fee set by Public Sector Audit Appointments Ltd (PSAA), a methodology was nationally agreed for identifying the costs associated with the ISA315r standard on which the proposed fee variation was based.  The external auditors explained that this fee will be incorporated to the scale fee set by PSAA going forward.

RESOLVED: Members noted the Final Report on the 2023/24 External Audit of South Yorkshire Pensions Authority.