External audit report 2016/17 - sheffieldcityregion.org.uk · This document summarises the key findings in relation to our 2016 -17 external audit at Sheffield City Region ... The

External audit report 2016/17

Sheffield City Region

Combined Authority

—

September 2017

Document Classification: KPMG Confidential

2© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Summary for Audit CommitteeFinancial statements This document summarises the key findings in relation to our 2016-17

external audit at Sheffield City Region Combined Authority (‘the Authority’).

This report focusses on our on-site work which was completed in August 2017 on the Authority and Group’s significant risk areas, as well as other areas of your financial statements. Our findings are summarised within section one of this report.

Subject to all outstanding queries being resolved to our satisfaction we anticipate issuing a unqualified audit opinion on the Authority's financial statements before the deadline of 30 September.

Within the group accounts it was noted that there were historic pension assets and liabilities that had not previously been accounted for due to an IAS 19 report not being produced. The PTE have taken accountability for these and as a result a prior year adjustment has also been made to the subsidiary (PTE) and group accounts.

We identified a number of adjustments during the course of our audit, most notably the accounting treatment of a loan to SCR Financial Interventions of £16m and the recognition of a cash transfer from the Authority. This transaction took place in order to satisfy DCLG’s defrayment requirement. Our audit also led to the reclassification of debtors and investments with South Yorkshire ITA Properties Ltd from long term to short term as they are due to wind down in 2017/18. There were a number of other immaterial adjustments and presentational amendments that are listed in Appendix Three.

We have not yet received the final consolidated accounts, however, we expect to have received these and all outstanding queries finalised by 11 September.

Use of resources We have completed our risk-based work to consider whether in all significant respects the Authority has proper arrangements in place to ensure it has taken properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. We have concluded that the Authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

We therefore anticipate issuing an unqualified value for money opinion.

See further details within section two.

Acknowledgements We would like to take this opportunity to thank officers and Members for their continuing help and co-operation throughout our audit work.

We ask the Audit Committee and those charged with governance to note this report.



Contents2 Summary for Audit Committee

4 Section one: financial statements

19 Section two: value for money

Appendices

25 One: Key issues and recommendations

27 Two: Follow-up of prior year recommendations

31 Three: Audit differences

34 Four: Materiality and reporting of audit differences

35 Five: Declaration of independence and objectivity

36 Six: Audit fees

The key contacts in relation to our audit are:

Timothy CutlerPartnerKPMG LLP (UK)

0161 246 [email protected]

Alison OrmstonSenior ManagerKPMG LLP (UK)


Matt AckroydManagerKPMG LLP (UK)


Olivia CammAssistant ManagerKPMG LLP (UK)


This report is addressed to Sheffield City Region Combined Authority (the Authority) and has been prepared for the sole use of the Authority. We take no responsibility to any member of staff acting in their individual capacities, or to third parties. Public Sector Audit Appointments issued a document entitled Statement of Responsibilities of Auditors and Audited Bodies summarising where the responsibilities of auditors begin and end and what is expected from audited bodies. We draw your attention to this document which is available on Public Sector Audit Appointment’s website (www.psaa.co.uk).

External auditors do not act as a substitute for the audited body’s own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively.

We are committed to providing you with a high quality service. If you have any concerns or are dissatisfied with any part of KPMG’s work, in the first instance you should contact Timothy Cutler, the engagement lead to the Authority, who will try to resolve your complaint. If you are dissatisfied with your response please contact the national lead partner for all of KPMG’s work under our contract with Public Sector Audit Appointments Limited, Andrew Sayers (on 0207 694 8981, or by email to [email protected]). After this, if you are still dissatisfied with how your complaint has been handled you can access PSAA’s complaints procedure by emailing [email protected], by telephoning 020 7072 7445 or by writing to Public Sector Audit Appointments Limited, 3rd Floor, Local Government House, Smith Square, London, SW1P 3H.

Financial Statements

Section one

We anticipate issuing an unqualified audit opinion on the Authority’s 2016/17 financial statements by 30 September 2017. We will also report that your Annual Governance Statement complies with the guidance issued by CIPFA/SOLACE (‘Delivering Good Governance in Local Government’) published in April 2016.

For the year ending 31 March 2017, the single entity Authority has reported a deficit of £608k and the Group a surplus of £2,886k.



Group Structure

The Sheffield City Region Combined Authority financial group consists of the Combined Authority itself, and those bodies that are controlled by the Combined Authority. Thus this section reports on the audit of the Sheffield City Region group accounts and any issues from the subsidiary audits that have impacted these.

Section one: financial statements

The above diagram is an extract from the financial statements and demonstrates this structure.



Significant audit risksSection one: financial statements

Significant audit risks Work performed

1. Accounting Treatment of Transferred Pensions (PTE and Group accounts)

Why is this a risk?

Following the termination of SYITA properties the Passenger Transport Executive has been notified that they will become responsible for any deficit arising in relation to the historical pre 1993 assets and liabilities remaining. The current year actuary valuation has provided the net assets and liabilities with this transfer and a deficit arising against the Executive of £2.6m. In addition there is a need to fully understand the impact regarding any future contributions and any impacts on revenue funding.

There is a risk that this pension scheme is not accounted for correctly within the relevant entity's financial statements and the Sheffield City Region Group accounts.

Our work to address this risk

The PTE have claimed responsibility for the assets and liabilities which has been approved by their Executive Board and we have requested a signed management representation letter to confirm this.

To validate this treatment initially we had to review and understand the historical treatment of this issue, dating back from 1983 to ascertain that the PTE is responsible for underwriting the deficit of the fund. This included reviews of the initial contracts for the fund.

We have reviewed correspondence with the Pension Fund and Actuary to understand the treatment of the assets and liabilities in the current year and previous years. The actuary confirmed that at each triennial actuarial valuation exercise, any funding deficit (or surplus) assessed for SYITA was effectively recharged into the position of the PTE, so the PTE received the risks and rewards of the scheme. Hence the fundamental accounting principle of substance over form meant this should have been recognised within the PTE’s accounts and a prior year period adjustment was made.

Throughout we have consulted with KPMG pension specialists who have reviewed the assumptions in place for the current year and the restated values.

We have verified the accounting treatment of this prior year period adjustment and the current in year treatment of the assets and liabilities and ensured that the disclosures complied with the CIPFA code.

Our External Audit Plan 2016/17 sets out our assessment of the Authority’s significant audit risks. During the year we provided an Update on Significant Risks to the July 2017 Audit Committee. We have completed our testing in these areas and set out our evaluation following our work:




Significant audit risks Work performed

2. New core financial system (Combined Authority)

Why is this a risk?

The general ledger used by the Combined Authority has changed in year. There has been a phased implementation of the new Integra system with the existing OEO system still being used for a number of feeder systems e.g. Accounts Payable and Receivable Ledgers.

There is a risk that account balances are incorrectly transferred from the old ledger to the new ledger incorrectly leading to a misstatement. There is also a risk that account balances are inaccurately coded due to an unfamiliarity with the new coding structure.


We reconciled the closing balance on the old ledger to the opening balance on thenew ledger to ensure no transactions were lost or duplicated in the transfer. Testingof activity in the year verified that the correct codes have been used both for thetransfer and subsequent activity, as well as any corrections made to this mapping were appropriate.

This work involved KPMG IT specialists who reviewed the controls around the new system to ensure users were appropriately recognised. This also included the reviewof the 'link' between the old OEO and other feeder systems to the new ledger toensure data is transferred as required.

Pension Fund Specific Risks

3. Continuing issues with the implementation of the Pensions Administration System (South Yorkshire Passenger Transport Pension Fund)

Why is this a risk?

The implementation of the pensions administration system by South Yorkshire Pensions Authority in 2014/15 caused problems for the Authority and, on implementation, it did not operate as designed. Workaround systems were put in place, for example on pensioners payroll to ensure members receive their entitlements.

As part of the 2015/16 audit, KPMG IT specialists undertook testing in respect of the migration of data from the old Heywoods Pension system to the new Civica Pension system. Their work identified a number of issues and we raised three recommendations. The exceptions noted contributed to a lack of assurance over completeness and accuracy for the migration from the old to new Pension systems.

Discussions with officers during 2016/17 indicate that significant progress has been made in addressing the problems arising from the implementation although there remain some outstanding issues such as backlogs in processing.


As part of our audit of the Pension Fund, we have:

• undertaken a walkthrough of the system to identify the controls in place in relation to member details, benefits payable and contributions;

• tested the operating effectiveness of relevant system controls;

• used KPMG IT specialists to review the progress the Authority has made during the year in addressing our recommendations; and

• tested benefits payable and contributions receivable substantively at the year end.

Subject to the outstanding matters highlighted in Appendix Two, the recommendations raised in 2015/16 have been sufficiently addressed to allow reliance to be placed on the information contained in the system. Our work on the controls in place provided assurance that these are operating effectively.




PTE and Pension Fund Specific Risk

4. Significant changes in the pension liability due to LGPS Triennial Valuation (PTE and South Yorkshire Passenger Transport PensionFund)

Why is this a risk?

During the year, the Local Government Pension Scheme for South Yorkshire PTE and the Pension Fund has undergone a triennial valuation with an effective date of 31 March 2016 in line with the Local Government Pension Scheme (Administration) Regulations 2013. The Authority’s share of the pension’s assets and liabilities is determined in detail, and a large volume of data is provided to the actuary in order to carry out this triennial valuation.

The pension liability numbers to be included in the financial statements for 2016/17 will be based on the output of the triennial valuation rolled forward to 31 March 2017. For 2017/18 and 2018/19 the actuary will then roll forward the valuation for accounting purposes based on more limited data.

There is a risk that the data provided to the actuary for the valuation exercise is inaccurate and that these inaccuracies affect the actuarial figures in the accounts. Most of the data is provided to the actuary by South Yorkshire Pension Authority, who administer the Pension Fund.


We have reviewed the process used to submit payroll data to the Pension Fund and have found no issues to note. We have also tested the year-end submission process and other year-end controls, this has been done through consultation with the pension fund audit team.

During the assessment of controls we noted that management could not evidence their review of the actuary assumptions and a recommendation has been raised around this at Appendix One.

We have substantively agreed the total figures submitted to the actuary to the ledger with no issues to note. We have engaged with your Pension Fund Auditors to gain assurance over the pension figures.

We reviewed the report received by the actuary and benchmarked the assumptions to determine whether these were appropriate, this work was performed by a KPMG pension specialist. We also assessed the capabilities and independence of the actuary.

We then reviewed that the journals posted agreed to the actuary report and that the accounts accurately reflected this report.

PTE Specific Risk

5.Valuation of Property, Plant and Equipment (PTE)

Why is this a risk?

At 31 March 2016 the PTE was reporting Property, Plant and Equipment with a value of £109.737m, representing the large majority of assets held on the Balance Sheet. It is the Authority’s policy to revalue assets at a minimum every 5 years on a rolling basis, ensuring that the value of assets held on the balance sheet is not materially different to the current value at year end.

There is an element of judgement exercised by the authority in determining whether assets require a valuation in year and also with regards to the assumptions made by the valuer in determining a value for the assets.

The ongoing tram/train project will progress during the year and the project will near completion. There is a risk that this is categorised incorrectly on the financial statements and the year end valuation provided is not a fair reflection of the project.

Given the materiality in value and the judgement involved in determining the carrying amount we have determined a significant risk with regards to this account.


We have tested the accuracy and completeness of the PTE’s asset register through review of the PTE’s asset verification exercise and the inspection of any significant new addition records.

We have reviewed the capitalisation of major expenditure in the year and obtained an understanding of the classification of the tram/train project.

No valuation had initially been performed in year and the impairment review undertaken was inadequate to support this justification. Due to this the audit team requested management to revalue a selection of material assets, making up 75% of the land and building assets held. This valuation was done by Sanderson Wetherall and resulted in a total increase in fixed assets of £4.8m. We reviewed the qualifications, approach of the valuer and the appropriateness of the valuation basis adopted, with which no issues were identified. We have raised a recommendation to improve the impairment review process going forward in Appendix One.




Fraud risk of revenue recognition

Professional standards require us to make a rebuttable presumption that the fraud risk from revenue recognition is a significant risk.

In our External Audit Plan 2016/17 we reported that we do not consider this to be a significant risk for Local Authorities as there is unlikely to be an incentive to fraudulently recognise revenue.

This is still the case. Since we have rebutted this presumed risk, there has been no impact on our audit work.

Management override of controls

Professional standards require us to communicate the fraud risk from management override of controls as significant because management is typically in a unique position to perpetrate fraud because of its ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively.

Our audit methodology incorporates the risk of management override as a default significant risk. We have not identified any specific additional risks of management override relating to this audit.

In line with our methodology, we carried out appropriate controls testing and substantive procedures, including over journal entries, accounting estimates and significant transactions that are outside the normal course of business, or are otherwise unusual.

There are no matters arising from this work that we need to bring to your attention.

Considerations required by professional standards



Other areas of audit focusSection One: Financial Statements

We identified four areas of audit focus across the Group. These are not considered as significant risks as they are less likely to give rise to a material error. Nonetheless these are areas of importance where we have carried out substantive audit procedures to ensure that there is no risk of material misstatement.

Other areas of audit focus Our work to address the areas

1. Disclosures associated with retrospective restatement of CIES, EFA and MiRS(Combined Authority and PTE)

Background

CIPFA has introduced changes to the 2016/17 Local Government Accounting Code (Code):

— Allowing local authorities to report on the same basis as they are organised by removing the requirement for the Service Reporting Code of Practice (SeRCOP) to be applied to the Comprehensive Income and Expenditure Statement (CIES); and

— Introducing an Expenditure and Funding Analysis (EFA) which provides a direct reconciliation between the way local authorities are funded and prepare their budget and the CIES. This analysis is supported by a streamlined Movement in Reserves Statement (MiRS) and replaces the previous segmental reporting note.

As a result the Authority and Group was required to make a retrospective restatement of its CIES (cost of services) and the MiRS. New disclosure requirements and restatement of accounts require compliance with relevant guidance and correct application of applicable accounting standards.

What we have done

We have assessed how the Group has actioned the revised disclosure requirements for the CIES, MiRS and the new EFA statement as required by the Code. We reconciled the new analysis to internal reporting to the governance structures of the organisation. We found no issues to note.

For the restatement, we have obtained an understanding of the methodology used to prepare the revised statements. We have also agreed figures disclosed to the’ Authorities general ledger and found no issues to note.

2. Concessionary Travel (PTE) Background

During 2015/16 expenditure on concessionary travel was circa £34m amounting to 31% of the PTE’s Gross Transport Expenditure.

There has been an increase in the rate charged to concessions for travel across South Yorkshire, therefore, this has led to an increased amount to be reimbursed by the PTE for each concession. This increase in price to be reimbursed per concession is offset in the total movements as the general trend for use of public transport decreases. Overall this has resulted in a decrease of £2.2m (6.5%) to a total spend of £31.5m.

What we have done

We have obtained an understanding of each contract and the controls in place at the PTE to monitor the amounts charged. We have assessed payments made in the year and agreed to supporting documentation.

Our testing identified that although there were no issues identified from review of the passenger information provided by the transport companies the PTE had not commissioned any audits of this during the financial year.



Other areas of audit focusSection One: Financial Statements

Other areas of audit focus Our work to address the areas

1. Compliance with the Code’s requirements (South Yorkshire Passenger TransportPension Fund)

Background

The format of the Fund Account and the Net Asset Statement have been updated for consistency with the new Financial Reports of Pension Schemes –A Statement of Recommended Practice 2015

What we have done

We have assessed the Pension Fund statements against the new format.

There are no matters to bring to your attention.

2. Valuation of unquoted investments (South Yorkshire Passenger Transport Pension Fund)

Background

There is a higher risk of material misstatement in the valuation of level two and level three investments.

What we have done

We have tested a sample of unquoted investments, focussing the sample on those in the higher risk category. Our testing has considered the classification of the investments, the valuation approach and the adequacy of the evidence to support the valuation.

There are no matters to bring to your attention.



JudgementsSection One: Financial Statements

Subjective areas 2016/17 2015/16 Commentary

Pensions

(PTE) We reviewed the pensions assumptions made by your actuary to ensure

they were in line with our expectations. We substantiated the figures to your actuary’s report and confirm that the accounting treatment of these within the account was correct. We have no indications that a balanced judgement has not been made.

Assets

(PTE) As detailed on page 6, we requested a valuation to be done on assets

due to the lack of impairment reviews performed.

Following the revaluations being received we have reviewed the assumptions and judgements of these and are satisfied that the Group has made a balanced judgement and that there is a low risk of material misstatement in light of those assumptions.

Provisions We have reviewed the assumptions and judgements which underpin the £1,846k of provisions accounted for in the Group accounts and we are satisfied that there is no risk of material misstatement in light of the assumptions used and that the provisions disclosure is complete.

The PTE is continuing to provide for a provision for overpaying a rail grant (£204k) in prior years and hearing loss claims (£50k). As such, we have assessed that, although the Group makes balanced judgement in relation to provisions, the decisions are closer to the cautious approach than the optimistic approach.

We queried whether the damage from the fire at the Rotherham Interchange should be provided for. However management concluded they were unable to make a reliable estimate and have therefore added a narrative note within the revised financial statements. This treatment is in line with the CIPFA code. See Appendix Three for more details.

We have considered the level of prudence within key judgements in your 2016/17 financial statements and accounting estimates. We have set out our view below across the following range of judgements.

Level of prudence

Cautious OptimisticBalanced

Acceptable range

Audit difference Audit difference



Proposed opinion and audit differencesSection one: financial statements

Subject to all outstanding queries being resolved to our satisfaction, we anticipate issuing an unqualified audit opinion on the Authority’s 2016/17 financial statements following approval of the Statement of Accounts by the Audit Committee and then the Combined Authority on 11 September 2017. Audit differences

In accordance with ISA 260 we are required to report uncorrected audit differences to you. We also report any material misstatements which have been corrected and which we believe should be communicated to you to help you meet your governance responsibilities.

The final materiality (see Appendix Four for more information on materiality) level for this year’s audit was set at £2 million. Audit differences below £100 thousand are not considered significant.

Our audit identified a total of four significant audit differences, which we set out in Appendix Three. It is our understanding that these will be adjusted in the final version of the financial statements.

The tables on the right illustrate the total impact of audit differences on the Group’s movements on the General Fund and HRA for the year and balance sheet as at 31 March 2017.

Our work identified the following adjustments:

— One adjustment required was the accounting treatment of a loan to SCR Financial Interventions of £16m as no cash had been transferred. This has been communicated with DCLG who have confirmed there is no clawback required from this as there are now plans to defray this.

— Our audit also led to the reclassification of debtors and investments with South Yorkshire ITA from long term to short term as they are due to wind down in 2017/18.

— Within the group accounts it was noted that there were historical pension assets and liabilities that had not previously been accounted for due to an IAS 19 report not being produced. The PTE have taken accountability of these and as a result a prior year adjustment has also been made to the subsidiary (PTE) and group accounts.

— Our audit of the PTE identified a significant audit difference of £4.7m to the valuation of Land and Buildings owned by the Passenger Transport Executive. This adjustment is to be reflected within the accounts.

In addition, we identified a small number of presentational adjustments required to ensure that the accounts are compliant with the Code of Practice on Local Authority Accounting in the United Kingdom 2015/16 (‘the Code’). We understand that the Authority will be addressing these where significant.

Annual governance statement

We have reviewed the Authority’s 2016/17 Annual Governance Statement and confirmed that:

— It complies with Delivering Good Governance in Local Government: A Framework published by CIPFA/SOLACE;

and

— It is not misleading or inconsistent with other information we are aware of from our audit of the financial statements.

Narrative report

We have reviewed the Authority’s 2016/17 narrative report and have confirmed that it is consistent with the financial statements and our understanding of the Authority.



The Pension FundSection one: financial statements

We anticipate issuing an unqualified audit opinion on the Fund’s 2016/17 financial statements.

Pension fund audit

Our audit of the Fund also did not identify any material misstatements.

There was no audit differences identified.

In the prior year we identified three recommendations around the Pensions Administration System and have concluded that these have been partially implemented during the year, see Appendix Two for more details. There have been no new recommendations raised from the current year audit work.

Annual report

We have reviewed the South Yorkshire Passenger Transport Pension Fund Annual Report]and confirmed that:

— The financial and non-financial information it contains is not inconsistent with the financial information contained in the audited financial statements.

We anticipate issuing an unqualified opinion on the South Yorkshire Passenger Transport Pension Fund at the same time as our opinion on the Statement of Accounts.

1616


Accounts production andaudit process


Accounting practices and financial reporting

The Authority has recognised the additional pressures which the earlier closedown in 2017/18 will bring. We have been engaging with the Authority in the period leading up to the year end in order to proactively address issues as they emerge.

We consider the Authority’s accounting practices appropriate.

Completeness of draft accounts

We received a complete set of draft accounts on 12 June 2017, which was prior to the statutory deadline.

Quality of supporting working papers

We issued our Accounts Audit Protocol 2016/17 (“Prepared by Client” request) which outlines our documentation request. This helps the Authority to provide audit evidence in line with our expectations. We followed this up with a meeting with Management to discuss specific requirements of the document request list.

We worked with management to ensure that working paper requirements are understood and aligned to our expectations. We are pleased to report that this has resulted in good-quality working papers with clear audit trails.

Our audit standards (ISA 260) require us to communicate our views on the significant qualitative aspects of the Authority’s accounting practices and financial reporting.

We also assessed the Authority’s process for preparing the accounts and its support for an efficient audit. The efficient production of the financial statements and good-quality working papers are critical to meeting the tighter deadlines.

© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.





Response to audit queries

Officers resolved many of the audit queries in a reasonable time and to a good quality. There were some delays noted to the journals testing due to the changes within the IT system.

Pension Fund audit

The audit of the Fund was completed alongside the main audit. There are no specific matters to bring to your attention relating to this.

Additional findings in relation to the Authority’s control environment for key financial systems

In our External Audit Interim Report 2016/17 tabled in April 2017, we reported that there were a number of year end controls that we will be testing during our year end audit.

We have since completed the testing of these controls and have found no significant issues to note.

Prior year recommendations

As part of our audit we have specifically followed up the Authority's progress in addressing the recommendations in last years ISA 260 report.

There are still a number of recommendations in progress.

Appendix Two provides further details.

Controls over key financial systems

We have tested controls as part of our focus on significant audit risks and other parts of your key financial systems on which we rely as part of our audit. The strength of the control framework informs the substantive testing we complete during our final accounts visit.

No issues were identified with these controls.



CompletionSection one: financial statements

We confirm that we have complied with requirements on objectivity and independence in relation to this year’s audit of the Authority’s 2016/17 financial statements.

Before we can issue our opinion we require a signed management representation letter.

Once we have finalised our opinions and conclusions we will prepare our Annual Audit Letter and close our audit.

Declaration of independence and objectivity

As part of the finalisation process we are required to provide you with representations concerning our independence.

In relation to the audit of the financial statements of Sheffield City Region Combined Authority and Group for the year ending 31 March 2017, we confirm that there were no relationships between KPMG LLP and Sheffield City Region Combined Authority, its directors and senior management and its affiliates that we consider may reasonably be thought to bear on the objectivity and independence of the audit engagement lead and audit staff. We also confirm that we have complied with Ethical Standards and the Public Sector Audit Appointments Ltd requirements in relation to independence and objectivity.

We have provided a detailed declaration in Appendix Five in accordance with ISA 260.

Management representations

You are required to provide us with representations on specific matters such as your financial standing and whether the transactions within the accounts are legal and unaffected by fraud. We have provided a template to the Section 151 Officer for presentation to the Audit Committee. We require a signed copy of your management representations before we issue our audit opinion.

We have requested the following specific representations from the PTE Executive Board:

— That In line with IAS 36, the Authority can confirm they have considered whether any of the groups assets should be impaired at the reporting date. That the authority can confirm that there are no circumstances of which the Authority is aware which indicate that a material change in the value of the Group’s land and building assets has taken place during 2016/17, save for those indicated by the valuations provided by the expert valuers, Sanderson Wetherall and Sheffield City Council Valuation team as at 31 March 2017;

— That the Authority can confirm that they have provided us with all relevant information following the Rotherham Interchange Fire regarding the estimation of the damages and the receipt of insurance payments; and

— In respect of the prior period restatement of pension assets and liabilities made to correct a material misstatement identified, the Executive confirms that the PTE is accountable for these assets and liabilities now and in the prior period and therefore the restatement is appropriate.

We have also asked the Combined Authority to confirm that they have shared relevant information with us on the pension fund and that they are of the view that the PTE is accountable.

Other matters

ISA 260 requires us to communicate to you by exception ‘audit matters of governance interest that arise from the audit of the financial statements’ which include:

— Significant difficulties encountered during the audit;

— Significant matters arising from the audit that were discussed, or subject to correspondence with management;

— Other matters, if arising from the audit that, in the auditor's professional judgment, are significant to the oversight of the financial reporting process; and

— Matters specifically required by other auditing standards to be communicated to those charged with governance (e.g. significant deficiencies in internal control; issues relating to fraud, compliance with laws and regulations, subsequent events, non disclosure, related party, public interest reporting, questions/objections, opening balances etc.).

There are no others matters which we wish to draw to your attention in addition to those highlighted in this report or our previous reports relating to the audit of the Authority’s 2016/17 financial statements.

Value for moneySection two

Our 2016/17 VFM conclusion considers whether the Authority had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.

We have concluded that the Authority has made proper arrangements to ensure it took properly-informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.



VFM conclusionSection two: value for money

The Local Audit and Accountability Act 2014 requires auditors of local government bodies to be satisfied that the authority ‘has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources’.

This is supported by the Code of Audit Practice, published by the NAO in April 2015, which requires auditors to ‘take into account their knowledge of the relevant local sector as a whole, and the audited body specifically, to identify any risks that, in the auditor’s judgement, have the potential to cause the auditor to reach an inappropriate conclusion on the audited body’s arrangements.’

Our VFM conclusion considers whether the Authority had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.

We follow a risk based approach to target audit effort on the areas of greatest audit risk.

VFM audit risk assessment

Financial statements and other audit work

Identification of significant VFM risks (if any)

Assessment of work by other review agencies

Specific local risk-based work

Continually re-assess potential VFM risks

Conclude on arrangements to

secure VFM

VFM conclusion

Overall VFM criteria: In all significant respects, the audited body had proper

arrangements to ensure it took properly informed decisions and deployed

resources to achieve planned and sustainable outcomes for

taxpayers and local peopleWorking with

partners and third parties

Sustainable resource

deployment

Informed decision-making

VFM

co

ncl

usi

on

bas

ed o

n

1 2 3



Section two: value for money

In consideration of the above, we have concluded that in 2016/17, the Authority has made proper arrangements to ensure it took properly-informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.

Further details on the work done and our assessment are provided on the following pages.

The table below summarises our assessment of the individual VFM risk identified against the three sub-criteria. This directly feeds into the overall VFM criteria and our value for money opinion.

VFM assessment summary

VFM riskInformed decision-

makingSustainable resource

deploymentWorking with partners

and third parties

1. Corporate Governance Arrangements



Significant VFM risksSection two: value for money

Significant VFM risks Work performed

1. Corporate Governance Arrangements

Why is this a risk?

Our VFM opinion for the 2015/16 period was qualified due to two key deficienciesat the authority, namely:

-A Corporate Code of Governance had not been established and-A robust risk management process had not been operational and embedded at the Authority throughout the period e.g. the authority's first risk register had only been presented to Audit Committee in July 2016.

We understand from discussion with officers that some progress has been made towards embedding these key processes in year, including the provision of areport from an external consultant with several recommendations aroundgovernance structures.

There is a risk that further improvements have not been made as required and that these have not been in place for the full financial year.

Summary of our work

We have noted significant progress of the governance arrangements during the year, this includes the development of a Code of Corporate Governance. The code was not approved by the Audit Committee until 27th April 2017, however, we have been able to evidence that the framework was suitably embedded in the Authority’s governance structures during the year.

We have reviewed the risk management process in year, this allowed us to review the risk management policy and strategy. Again these documents were not approved until the end of the year (March 2017), however, we have been able to confirm that the processes to which it relates were operating during the year with the inclusion of a developed risk register which is reported on quarterly.

In consideration of the above, we have concluded that in 2016/17, the Authority has made proper arrangements to ensure it took properly-informed decisions and deployed resources to achieve planned and sustainable outcomes for local people.

We have identified one significant VFM risk, as communicated to you in our 2016/17 External Audit Plan. In all cases we are satisfied that external or internal scrutiny provides sufficient assurance that the Authority’s current arrangements in relation to these risk areas are adequate.

Appendices



Key issues and recommendationsAppendix One

2016/17 recommendations summary

PriorityNumber raised from our

year-end audit

High 1

Medium 2

Low 0

Total 3

Our audit work on the Group financial statements has identified a number of issues. We have listed these issues in this appendix together with our recommendations which we have agreed with Management. We have also included Management’s responses to these recommendations.

The Authority should closely monitor progress in addressing the risks, including the implementation of our recommendations. We will formally follow up these recommendations next year.

This section includes recommendations for the subsidiaries of the Combined Authority.

Each issue and recommendation have been given a priority rating, which is explained below.

Issues that are fundamental and material to your system of internal control. We believe that these issues might mean that you do not meet a system objective or reduce (mitigate) a risk.

Issues that have an important effect on internal controls but do not need immediate action. You may still meet a system objective in full or in part or reduce (mitigate) a risk adequately but the weakness remains in the system.

Issues that would, if corrected, improve internal control in general but are not vital to the overall system. These are generally issues of good practice that we feel would benefit if introduced.

The following is a summary of the issues and recommendations raised in the year 2016/17.

High priority

Medium priority

Low priority



Appendix One

1. Impairment Review

During the audit of the PTE we identified that a revaluation of assets had not occurred since 2015 at the Passenger Transport Executive and, since then, the indices provided by Building Cost Information Services, based on average selling prices in the UK ,indicated that there had been a material change to the value of these assets. The audit team queried the impairment review to support that no movement was required to these assets.

We were informed that there was no other impairment review done, unless it is clear that there has been damage to a property.

Without a comprehensive review of impairment the PTE’s assets could be misstated in the accounts. Due to this the audit team requested management to revalue a selection of assets during the year.

Recommendation

The Group needs to review that the PTE has an effective control for monitoring possible impairment of its assets. This should include developing a revaluation policy, in line with accounting standards, that considers not just the assets appropriate for revaluation but also the remaining assets for signs of impairment. This should be done by as a desktop review of the estates and through a review of corporate decision making, looking at any future changes to be made to the assets.

Management Response

The CA will have oversight of the financial reporting process for the CA group as a whole in 2017/18. As such, it will ensure that the recommendation is implemented in preparing the 2017/18 accounts

Owner

S.73 responsible finance officer

Deadline

31/03/2017

2. Review of Pension Assumptions

During our audit of the PTE we were not provided with any evidence to confirm managements review of the assumptions taken by the actuary.

Without this early oversight of the assumptions there is a risk that the figures provided by the actuary may not be appropriate for the year end accounts.

RecommendationThe Group should ensure that PTE management have performed a review of the assumptions and can evidence that this has been done.

Management Response

The CA will have oversight of the financial reporting process for the CA group as a whole in 2017/18. As such, it will ensure that the recommendation is implemented in preparing the 2017/18 accounts

Owner

S.73 responsible finance officer

Deadline

31/03/2017

3. Continued Review of Governance

Whilst this report acknowledged the improvements that have been made to Governance within the Authority these mechanisms and formal codes are still being embedded within the organisation. Furthermore, as the Authority continues to expand there is a risk that such policies and structures will become out of date and not reflective of the governance needs.

RecommendationThe Authority should continue to review and amend its governance structure to meet its needs. This should include full consideration of all issues raised within the Metro Dynamics report and a consideration of the governance structures within the Group.

Management Response

The CA will continue to ensure that improvements in Governance are embedded and will conduct a light touch review to confirm that this is the case and take steps to further strengthen arrangements where opportunities to do so are identified.

Owner

Executive Director

Deadline

31/03/2017

High priority

Medium priority

Medium priority



Follow-up of prior year recommendationsAppendix Two

In the previous year, we raised four recommendations which we reported in our External Audit Report 2015/16 (ISA 260). The Authority has not implemented all of the recommendations. We re-iterate the importance of the outstanding recommendations and recommend that these are implemented by the Authority.

We have used the same rating system as explained in Appendix 1.

Each recommendation is assessed during our 2016/17 work, and we have obtained the recommendation’s status to date. We have also obtained Management’s assessment of each outstanding recommendation.

Below is a summary of the prior year’s recommendations.

2015/16 recommendations status summary

PriorityNumber raised

Number implemented / superseded

Number outstanding

High 4 1 3

Medium 0 0 0

Low 0 0 0

Total 4 1 3

1. Corporate Governance ArrangementsWe noted both from our own work and the Authority’s Annual Governance Statement that a Code of Corporate Governance has not yet been established at the Authority.

We also noted that whilst the Authority has made good progress in establishing a robust risk management process this was still in its infancy and had not been in place for the full 2015/16 period with the first corporate risk register only being presented to Audit Committee in July 2016.

There remained some issues with regards to the data processing performance of the pension fund (highlighted in recommendations 2-4), although we acknowledge that, other than moving pensions administrator, these issues are largely out of the control of the Authority directly.

RecommendationThe Authority needs to establish a clear Code of Corporate Governance as a priority in order to demonstrate it is operating effectively in the 2016/17 period. Establishing the Code should also enable the risk management framework

to become more fully embedded.

Management ResponseThe Authority has implemented a number of changes to its Corporate Governance arrangements during financial year 2015/16, and will work to ensure that these are fully embedded and reviewed throughout 2016/17.The Authority continues to recognise that further development of arrangements are, however, necessary. External support has been commissioned from specialist consultancy providers to support the Authority in developing effective arrangements as it moves towards a devolution agreement with central government, and as an evolving organisation the Authority will continue to review those arrangements.As administering body, the Authority will coordinate with SYPA such that the changes necessary to address weaknesses identified in the pension fund are implemented.

Responsible OfficerDave Smith –Head of Paid Service

Due Date31 March 2017

KPMG’s August 2017 assessment

As not our work on Value for Money a Corporate Governance code and risk management framework have been established.

High priority

Fully implemented



Appendix Two

2. Pension Admin System (SYPA) –Mapping Errors

Due to mapping errors from Axis to UPM not being recognised until post go live, issues are arising on an ad hoc basis with no clear indication or certainty of how many exist in UPM.

Management have informed us that once UPM DART (the data cleansing tool) is fully operational it will allow SYPA to improve the data quality significantly going forward.

Recommendation

Management should continue to be alert for mapping errors and deal with them promptly and completely (making full use of the DART tool once operational) once identified.

Management original response

Procedures are in place for the notification and rectification of data mapping errors as and when they arise. Whilst the possibility of new errors remains, it is unlikely that they will impact large numbers of members the further we move away from our live implementation date. Nevertheless, DART will be used to ensure any erroneous data is corrected.

Owner

Gary Chapman (SYPA)

Original deadline

31 March 2017

KPMG’s July 2017 assessment

Positive steps have been taken to manage this area with management. With work instructions being created, this has now been issued to the UPM Team as formal notification to assist identification and resolution of data issues.

Given the ongoing issues regarding unknown mapping errors and the creation of the spreadsheet to assist in the management of this area, management should be aware that general IT controls need to be considered such as access to program and data, change management, development and computer operations (such as backup etc.).

Management’s July 2017 response

Despite the fact that the number of data mapping errors arising from data conversion is declining with the passage of time I agree that they can occur from time to time. We now have the structure in place to ensure they are accurately recorded and dealt with through our DART system and we are routinely taking all the necessary IT control steps identified in the further recommendation.

I’m happy for this to be tested again and then removed at the end of the next financial year.

It is noted that this issue will only exist at the Combined Authority for part of the year in 2017/18 as the fund transfers to Greater Manchester.

High priority

Partially implemented



Appendix Two

3. Pensions Administration System (SYPA) –Helpdesk issues

The number of issues logged across the UPM team in the major areas (Processes and Calculations) was high. At 16 June 2016 these stand at 173 outstanding issues in respect of Calculations and 251 outstanding issues in respect of Processes.

It our understanding that a proportion of the issues logged were due to data migration problems.

Recommendation

Management should address those outstanding issues relating to data migration problems promptly and completely (making full use of the DART tool once operational).


The UPM team is currently concentrating heavily on the annual returns and actuarial valuation process and as a consequence a backlog of support logs relating to UPM calculations and processes has built up over time.

However the vast majority of these issues relate to current UPM usage and not data migration issues and are prioritised according to their urgency and impact on similar cases. It is agreed though that any data migration issues should be dealt without delay.

Owner

Gary Chapman (SYPA)

Original deadline

31 October 2016


Positive steps have been taken to manage this area with management. With work instructions being created, this has now been issued to the UPM Team as formal notification to assist identification and resolution of data issues.

Given the ongoing issues regarding unknown mapping errors and the creation of the spreadsheet to assist in the management of this area, management should be aware that general IT controls need to be considered such as access to program and data, change management, development and computer operations (such as backup etc.).


Despite the fact that the number of data mapping errors arising from data conversion is declining with the passage of time I agree that they can occur from time to time. We now have the structure in place to ensure they are accurately recorded and dealt with through our DART system and we are routinely taking all the necessary IT control steps identified in the further recommendation.

I’m happy for this to be tested again and then removed at the end of the next financial year.

It is noted that this issue will only exist at the Combined Authority for part of the year in 2017/18 as the fund transfers to Greater Manchester

High priority




Appendix Two

4. Pensions Administration System (SYPA) –Access Control

From review of the internal project plan / issues log we noted that following issue remained open on and after Weekly Update w/c 09/02/15, management have confirmed that this issue has not been resolved:

Any pay element (basic pension, PI, refund, transfer, etc.) can be amended by Payroll without a process/instruction from Pensions Admin. Although there is a warning given by the system prior to confirming any amendment to a pay element.

We noted no formal review had been carried out on the above area to provide assurance over unauthorised changes to key and or sensitive information occurring.

Recommendation

Management should carry out a formal review of the above area as soon as possible to ensure:

• Only authorised changes have and are made to data and system;

• The results of the review should be documented and actions identified should be tracked to completion;

• Appropriate segregations of duties are implemented to reduce the risk of unauthorised changes; and

• Going forward a formal periodic reviews is carried out, documented and signed off by management.


We will commence work on this after we have completed the valuation and annual

statement projects.Owner

Gary Chapman (SYPA)

Original deadline

31 October 2016


We recommend that this issue remains open for a further year and revisited to confirm that the processes discussed have been implemented and are fit for purpose.


Recommendation agreed

It is noted that this issue will only exist at the Combined Authority for part of the year in 2017/18 as the fund transfers to Greater Manchester

High priority




Audit differencesAppendix Three

We are required by ISA 260 to report all uncorrected misstatements, other than those that we believe are clearly trivial, to those charged with governance (which in your case is the Audit Committee). We are also required to report all material misstatements that have been corrected but that we believe should be communicated to you to assist you in fulfilling your governance responsibilities.

A number of minor amendments focused on presentational improvements have also been made to the 2016/17 draft financial statements. The Finance team is committed to continuous improvement in the quality of the financial statements submitted for audit in future years.

Adjusted audit differences

The following table sets out the significant audit differences identified by our audit of Sheffield City Region Combined Authority's financial statements for the year ended 31 March 2017. It is our understanding that these will be adjusted. However, we have not yet received a revised set of financial statements to confirm this.

Table 1: Adjusted audit differences (£’000)

No. Adjustments made Basis of audit difference

1 Dr Short Term Debtors £4,209

Dr Short Term Investments £6,419

Cr Long Term Debtors £4,209

Cr Long Term Investments £6,419

There are currently plans to wind up South Yorkshire ITA in 2017/18, therefore, it was recognised that these assets would be recoverable within the year and, therefore, required restating as short term.

2 Dr 2016 Pension Reserve £3.5m

Dr Interest cost 2016 £0.1m

Cr 2016 Pension Liability £2.6m

Cr Other Comprehensive Income 2016 £0.9m

Following the crystallisation of the South Yorkshire ITA pension fund, due to the retirement of the last active member, it was noted that this had not previously been accounted for.

Upon review of the previous treatment of the fund it was identified that the PTE had received changes to contribution rates based on inclusion of this fund within the valuations. Therefore, the risks and rewards of the fund in previous years has been retained by the PTE, requiring a prior period adjustment to be made to recognise the substance of this. The PTE have further claimed responsibility of this fund.

The 2016 assets and liabilities were required to be restated to include these.

This also resulted in an amendment to the Other Comprehensive Income recognised in year.

3 Dr Other Operating Expenditure £441k

Cr Transport Services Gross Expenditure £441k

The expenditure incurred on the Rotherham Interchange due to fire damage and the income received from the loss adjusters had been incorrectly classified as Transport Services on the Comprehensive Income and Expenditure Statement in the Group accounts. As the expenditure and income does not relate to standard Transport Service expenditure it has now been disclosed separately on the statement.

Dr Transport Services Gross Income £398k

Cr Other Operating Income £398k

4 Dr Other Long Term Liabilities £15,653

Cr Cash £15,653 During the year a previously dormant subsidiary was provided with a capital loan in order to defray some unspent grant monies. This had been accounted for as a creditor as no money was transferred. However, it should have been treated as a reconciling item within the cash book as the cash does not belong to the CA. Therefore, the accounts were adjusted to recognise this.




Additional disclosures – South Yorkshire Passenger Transport Executive Group Account Impact

The following table sets out the additional disclosures required identified by our audit of South Yorkshire Passenger Transport Executive’s financial statements and thus the Group financial statements for the year ended 31 March 2017.

Table 3: PTE Adjusted disclosures

No. Area of Accounts Amendments

1 Capital Commitments The audit team identified that the Embedded Rail Replacement programme, due to occur in 2017, for which there is a contractual obligation to undertake had not been disclosed within the accounts. As the PTE has commissioned this work, to an estimate of £15.1m, these works need to be added as capital commitments within the note to the accounts.

2 Contingent Liabilities Following the fire at Rotherham Interchange there is work required to make the terminal operational and comply with the lease agreement. The PTE have a proposal in place for the works to be done, however, they cannot yet determine what work is due to the fire damage and what work is for capital enhancement. Therefore, a contingent liability is required to be recognised.

3 There are a number of ongoing investigations by the Rail Accident Investigation Branch following tram incidents with the possibility that this could lead to future costs to the PTE. Therefore, the disclosure of a contingent liability is required.

4 Grant Income Classification The audit team identified that there was a misclassification within the grant income note. Grant income totalling just over £900k had been included with the ‘Better Bus Area’ line when it should have been included within the ‘Local Authority’ line.

5 Accounting Policies Note 1.3.3 ‘Post-Employment’ Benefits stated that liabilities were discounted to their value at current price, using a discount rate, but this rate had not been detailed as is required within the CIPFA code.

Additional disclosures – Sheffield City Region Combined Authority and Group Accounts

The following table sets out the additional disclosures required identified by our audit of the Sheffield City Region Combined Authority’s financial statements for the year ended 31 March 2017.

Table 2: Adjusted disclosures


1 Related Party Transactions The payments for the related party disclosures were incorrectly linked via a formula and did not agree to the payments made in the year. The note has now been amended to reflect the ledger.

2 Members Allowances A note for members' allowances was not included within the accounts despite amounts being present. In line with requirements from the CIPFA code a disclosure has now been included.

3 Accounting Policies There was no reference to Soft Loans within the Accounting Policies note, this is now to be included in line with the CIPFA code.

4 Officers Remuneration The payments made to the Head of Paid Service had not been included within the note as these were paid on a consultant basis, however, it was deemed that this was a fundamental disclosure to the reader of the accounts and thus this is now to be included.




Unadjusted audit differences

We have not identified any unadjusted audit differences.

Table 2: PTE Adjusted disclosures (cont.)


6 Officers Remuneration Further disclosure was required within Note 24 regarding officer remuneration. The table highlighting the remuneration bandings included senior management and yet this had not been disclosed in the narrative below the table, as is required by the CIPFA code.



Materiality and reporting of audit differencesAppendix Four

Material errors by value are those which are simply of significant numerical size to distort the reader’s perception of the financial statements. Our assessment of the threshold for this depends upon the size of key figures in the financial statements, as well as other factors such as the level of public interest in the financial statements.

Errors which are material by nature may not be large in value, but may concern accounting disclosures of key importance and sensitivity, for example the salaries of senior staff.

Errors that are material by context are those that would alter key figures in the financial statements from one result to another – for example, errors that change successful performance against a target to failure.

We used the same planning materiality reported in our External Audit Plan 2016/17, presented to you in April 2017.

Materiality for the Authority’s accounts was set at £2 million which equates to around 1% percent of the groups gross expenditure. We design our procedures to detect errors in specific accounts at a lower level of precision.

Reporting to the Audit Committee

Whilst our audit procedures are designed to identify misstatements which are material to our opinion on the financial statements as a whole, we nevertheless report to the Audit Committee any misstatements of lesser amounts to the extent that these are identified by our audit work.

Under ISA 260, we are obliged to report omissions or misstatements other than those which are ‘clearly trivial’ to those charged with governance. ISA 260 defines ‘clearly trivial’ as matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any quantitative or qualitative criteria.

ISA 450 requires us to request that uncorrected misstatements are corrected.

In the context of the Authority, we propose that an individual difference could normally be considered to be clearly trivial if it is less than £0.1 million for the Authority.

Where management have corrected material misstatements identified during the course of the audit, we will consider whether those corrections should be communicated to the Audit Committee to assist it in fulfilling its governance responsibilities.

Materiality – Pension fund audit

The same principles apply in setting materiality for the Pension Fund audit. Materiality for the Pension Fund was set at £3 million.

We design our procedures to detect errors at a lower level of precision, set at £0.15 million for 2016/17

The assessment of what is material is a matter of professional judgment and includes consideration of three aspects: materiality by value, nature and context.



Appendix Five

Declaration of independence and objectivity

Auditors appointed by Public Sector Audit Appointments Ltd must comply with the Code of Audit Practice (the ‘Code’) which states that:

“The auditor should carry out their work with integrity, objectivity and independence, and in accordance with the ethical framework applicable to auditors, including the ethical standards for auditors set by the Financial Reporting Council, and any additional requirements set out by the auditor’s recognised supervisory body, or any other body charged with oversight of the auditor’s independence. The auditor should be, and should be seen to be, impartial and independent. Accordingly, the auditor should not carry out any other work for an audited body if that work would impair their independence in carrying out any of their statutory duties, or might reasonably be perceived as doing so.”

In considering issues of independence and objectivity we consider relevant professional, regulatory and legal requirements and guidance, including the provisions of the Code, the detailed provisions of the Statement of Independence included within the Public Sector Audit Appointments Ltd Terms of Appointment (‘Public Sector Audit Appointments Ltd Guidance’) and the requirements of APB Ethical Standard 1 Integrity, Objectivity and Independence (‘Ethical Standards’).

The Code states that, in carrying out their audit of the financial statements, auditors should comply with auditing standards currently in force, and as may be amended from time to time. Public Sector Audit Appointments Ltd guidance requires appointed auditors to follow the provisions of ISA (UK&I) 260 ‘Communication of Audit Matters with Those Charged with Governance’ that are applicable to the audit of listed companies. This means that the appointed auditor must disclose in writing:

— Details of all relationships between the auditor and the client, its directors and senior management and its affiliates, including all services provided by the audit firm and its network to the client, its directors and senior management and its affiliates, that the auditor considers may reasonably be thought to bear on the auditor’s objectivity and independence.

— The related safeguards that are in place.

— The total amount of fees that the auditor and the auditor’s network firms have charged to the client and its affiliates for the provision of services during the reporting period, analysed into appropriate categories, for example, statutory audit services, further audit services, tax advisory services and other non-audit services. For each category, the amounts of any future services which have been contracted or where a written proposal has been submitted are separately

disclosed. We do this in our Annual Audit Letter.

Appointed auditors are also required to confirm in writing that they have complied with Ethical Standards and that, in the auditor’s professional judgement, the auditor is independent and the auditor’s objectivity is not compromised, or otherwise declare that the auditor has concerns that the auditor’s objectivity and independence may be compromised and explaining the actions which necessarily follow from his. These matters should be discussed with the Audit Committee .

Ethical Standards require us to communicate to those charged with governance in writing at least annually all significant facts and matters, including those related to the provision of non-audit services and the safeguards put in place that, in our professional judgement, may reasonably be thought to bear on our independence and the objectivity of the Engagement Lead and the audit team.

General procedures to safeguard independence and objectivity

KPMG LLP is committed to being and being seen to be independent. As part of our ethics and independence policies, all KPMG LLP Audit Partners and staff annually confirm their compliance with our Ethics and Independence Manual including in particular that they have no prohibited shareholdings.

Our Ethics and Independence Manual is fully consistent with the requirements of the Ethical Standards issued by the UK Auditing Practices Board. As a result we have underlying safeguards in place to maintain independence through: Instilling professional values, Communications, Internal accountability, Risk management and Independent reviews.

We would be happy to discuss any of these aspects of our procedures in more detail.

Auditor declaration

In relation to the audit of the financial statements of Sheffield City Region Combined Authority and the Passenger Transport Pension Fund for the financial year ending 31 March 2017, we confirm that there were no relationships between KPMG LLP and Sheffield City Region Combined Authority and the Passenger Transport Pension Fund, its directors and senior management and its affiliates that we consider may reasonably be thought to bear on the objectivity and independence of the audit engagement lead and audit staff. We also confirm that we have complied with Ethical Standards and the Public Sector Audit Appointments Ltd requirements in relation to independence and objectivity.



Appendix Six

Audit fees

As communicated to you in our External Audit Plan 2016/17, our scale fee for the audit is £38,200 plus VAT (£38,200 in 2016/17), which is the same as the prior year.

However, we propose to seek additional fee due to additional work undertaken in relation to the restatement of the prior years pension asset and liabilities which the PTE has now claimed responsibility. To reach a conclusion on the issue we were required to review historic information dating back to 1983, review various correspondence from the actuary and the pension fund and consult with internal KPMG specialists. We were also required to revisit the accounts after the audit had ended to ascertain the accounting adjustments made.

We have also experienced delays to the finalisation of our audit report due to awaiting external confirmation with regards the transactions within SCR Financial Interventions.

Delays have been further experienced with Journals testing for which the initial listing we were provided was incomplete, these issues have arisen due to changes to the finance system.

Audit fees

Note 1: Accounts opinion and use of resources work

For 2016/17, we have discussed additional fee with the S151 officer. This is still subject to PSAA determination.

All fees are quoted exclusive of VAT.

PSAA fee table

Component of audit

2016/17(actual fee)

£

2015/16(actual fee)

£

Accounts opinion and use of resources work

PSAA scale fee set – Combined Authority 38,200 38,200

PSAA scale fee set – Pension Fund 21,000 21,000

PSAA scale fee set – South Yorkshire Passenger Transport Executive 35,861 35,861


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Documents

External audit report 2016/17 - sheffieldcityregion.org.uk · This document summarises the key findings in relation to our 2016 -17 external audit at Sheffield City Region ... The