Newham Council's audit plan for the upcoming year is designed to rebuild assurance following a series of disclaimed opinions on its financial statements.
The Audit and Governance Committee received an update on the external audit plan for 2025/26 from EY, who highlighted that the council has issued disclaimed audit opinions for the previous three years. The audit strategy for the current year will focus on rebuilding this assurance, with the aim of completing all planned procedures by the end of November 2026.
Simon Mathers, partner in charge of the audit, stated that while significant rebuilding of assurance over the historic position is unlikely in the 2025/26 cycle, completing all planned procedures would be a significant step forward.
He added that progress was made last year
and that the council is hopefully on an upward trajectory.
The disclaimed audit opinions for the past three years stem from the ongoing work to rebuild assurance following the national reset of the local audit regime. Andrew Ward, Director of Finance Management, explained that the biggest barrier
is confirming opening balances, which makes it difficult to confirm closing balances. He noted that counselling and audit capacity is some part of that
contributing to the situation many councils face with disclaimed opinions.
EY's risk assessment for 2025/26 will evaluate the risk of material misstatement in opening reserve balances, where assurance was not previously obtained. Simon Mathers from EY stated, this year we have undertaken a detailed risk assessment to evaluate the risk of material misstatement on opening reserve balances, where we did not have assurance... and then to assess management's preparedness to support historic rebuild of assurance.
If EY can deliver all planned procedures this year, it will provide the committee with a far greater level of assurance than has been the case over the last three years.
Key audit risks identified for 2025/26 include the presumptive risk of management override of controls, the inappropriate capitalisation of revenue expenditure, and the valuation of property assets. The audit plan also addresses risks related to the recoverability of loans to subsidiaries and pension liabilities.
Regarding the inappropriate capitalisation of revenue expenditure,
EY identified this as a specific fraud risk. Karen Cunanan from EY explained that councils are universally under pressure financially, and that pressure is primarily on the revenue budget.
She added that there are capital funding sources that the council cannot use to finance revenue expenditure... It can only borrow to finance capital spend. So we think there is a risk, given the financial pressure that's faced, that the council inappropriately seek to charge revenue costs to capital financing sources.
EY's response includes testing capitalised amounts and looking for unusual journals transferring from revenue to capital codes.
Concerning 'loans to subsidiaries', Meinir Hall, Chief Accountant, stated that the council is currently reviewing the loans, expected credit losses
and that these figures may change before the auditors receive them. The council is also reviewing its companies to test liabilities and understand the balance options, aiming to avoid a position where they have to support their companies. Pension liabilities
were identified by Karen Cunanan from EY as an other inherent risk in relation to the recoverability of the loans to the subsidiaries, the pension liabilities and list accounting reflecting the degree of estimation and judgment involved in these areas.
The council has been informed that while progress has been made, a relatively high number of recommendations from previous audits
still need to be addressed. Simon Mathers from EY noted that in appendix D of the report... we set out recommendations or repeat the recommendations that we raised last year designed to engender that improvement.
Maria Christofi, Interim Assistant Chief Executive – Change & Improvement & Corporate Director of Resources, acknowledged that a significant number of overdue high-priority recommendations were noted, with 21 out of 57 overdue actions being classified as Priority 1.
She expressed dissatisfaction and highlighted the need for an expanded audit plan and potentially more internal audit resources.
The audit timeline aims for all work to be completed by the end of November 2026, with reports issued by the end of the calendar year. This aligns with the statutory backstop date of 31 January 2027 for the audit opinion.
For more details on the audit and governance committee, refer to the Public reports pack.
