Tower Hamlets Council's Audit Committee has reviewed a plan detailing key risks associated with the upcoming audit of the Pension Fund's financial statements for the year ending March 31, 2026. The plan, presented by external auditors Ernst & Young (EY), outlines the audit strategy, scope, identified risks, and materiality levels.
The audit is currently ongoing and progressing in line with the audit timeline, with fieldwork nearing completion as of September 2026. An Audit Findings Report (ISA260) is expected to be issued at the November 2026 Audit Committee meeting, along with an expected disclaimer opinion for the FY25/26 Statement of Accounts. The Audit Committee's role is critical in driving readiness and overseeing governance to support the recovery trajectory, and they are asked to note the Pension Fund External Audit Plan and that EY will attend the meeting to present the plan and respond to questions. Regarding the Council's overall Value for Money risks, work remains ongoing, and the committee will be updated on any identified significant weaknesses.
Key risks highlighted in the audit plan include the presumptive risk of management overriding controls. This risk pertains to the possibility that the financial statements as a whole are not free from material misstatement, whether caused by fraud or error. EY will perform mandatory procedures regardless of specifically identified fraud risks, including testing the appropriateness of journal entries and considering management bias in key accounting estimates.
Another significant risk area is the valuation of complex investments. Beyond unquoted equities and property, the Pension Fund holds pooled property and pooled infrastructure categories, which are classified as Level 3 investments. These are investments where at least one input that could significantly affect the asset's valuation is not based on observable market data.
Disclosures related to the actuarial present value of promised retirement benefits are also a focus. In the prior year, audits were qualified or disclaimed due to issues with the accuracy of membership data provided to the actuary for triannual valuations in 2019 and 2022. Specifically, errors in this data meant auditors could not determine if adjustments were needed for the 2024/25 Pension Fund Accounts. EY will engage specialists to assess the work done on membership data and actuarial assumptions.
Materiality for the audit has been set at £21.9 million. This figure represents 1% of the Fund's net assets, which are approximated at £2.2 billion in relation to the Pension Fund's investments as of March 31, 2025.
The Audit Committee Work Plan for 2026/27 includes a commitment to review internal control issues further. The committee's role is deemed critical in driving readiness and overseeing governance to support the recovery trajectory.
