A borough councillor has said that Test Valley Borough Council (TVBC) “ought to have” a better valuation system after an audit investigation saw significant changes to the value of its properties.

Councillor Alan Dowden made the remarks during a meeting of TVBC’s General Purposes committee, which was considering the statement of accounts for the previous financial year. An audit carried out by Ernst & Young saw the value of the council’s property assets raised by £40 million following disagreements over the assumptions used.

Cllr Dowden said that steps must be taken to ensure that the change “doesn’t happen again.”

In response to his question, Carl Whateley, TVBC’s Head of Finance and Revenues, said the difference was due to “uncertainties” caused by the pandemic, but said it would be something the council will be looking to review in future.

Each year, TVBC has to produce and approve a statement of its accounts every year, which are then audited by an external auditor. The accounts for the previous financial year, 2019-2020, were presented to the General Purposes Committee on February 10 for consideration, and to hear from the council’s auditors, Ernst & Young.

Kevin Suter, an associate partner with the firm, addressed the meeting, and said that the firm was in a position to offer an unqualified opinion on the council’s accounts and its use of resources.

“That really should be the two conclusions you want at the end of an audit,” he said.

However, the firm did make a number of findings in respect of the valuation of TVBC’s properties, and challenged the assumptions that were used by the council to reach them.

The process began as a result of the Royal Institute of Chartered Surveyors issuing guidance to its members regarding the uncertainty in valuations because of the Covid pandemic. As a result, the auditors identified this as having a potential for “an enhanced focus of risk”, and so brought in specialists to assess the council’s valuations.

Using a sample of the council’s property, Ernst & Young reviewed the process used to assign values. They disagreed with the yield given on properties such as the Walworth Business Park, as they judged it to be of a “low level of risk.” As a result, the value of the park jumped by £23.6 million, with values of other business parks also increasing significantly. The firm also reported "inaccurate calculations" and valuation "inconsistencies".

Auditor Kevin Suter said: “We disagreed with some of the assumptions that were made around the yield being used. We had judged a more appropriate range around 4.5 to 5.5 per cent based on the security of the income compared to the initial calculation of your valuers indicating an assumption of around 7.75 per cent.

“They arrived at a valuation significantly higher, which we felt was entirely justified within a reasonable range when we looked at the assumptions we made as part of that review. The council subsequently had a look at further assets, such as East and West Portway which have similar characteristics; again looking predominantly at the yield factors and again resulting in the adjustments of the valuations of these assets.”

He said that delays associated with these checks were “predominantly” the reason the firm missed its audit completion target of November 30.

Cllr Alan Dowden then asked what the council could do to ensure this “significant difference” did not occur again.

Kevin Suter said: “This is a specialised and technical area and we haven’t brought in our valuation specialists before to challenge the assumptions that were made and as a consequence of the audit, though it wasn’t directly related to coronavirus, I’m very glad that we did having had the findings.

“Firstly, we need to reflect upon the findings from this year and make sure they’re not ignored and duly consider the valuation that needs to take place over the coming months to prepare the next set of financial statements as we don’t want to be having the same argument over again. “

Carl Whateley then gave a response from the council, saying that their approach was “largely consistent with the approach that had been used in previous years”.

He said: “The valuations were carried out very soon after the end of the financial year, right at the time coronavirus was having an impact, and did build in a much more cautious approach to the valuation because of the uncertainties that was causing at the time. As time has progressed, when much more was known about the strength of the property market, we’re able to take into account other evidence that affected the balance sheet.

“That said, it’s still a very large variation and something we’ll be looking to review once the accounts for this year are signed off in our approach to carrying out valuations going forward and the amount and extent to which we seek external independent advice on those valuations as part of the preparations of the account given the vast value that both investment properties and land and building assets have in our statement.”

Thanking the men for their answer, Cllr Dowden said: “I think the council ought to have a better independent valuation system really as that’s really thrown something up. We have to make sure it doesn’t happen again.”

Councillors subsequently voted to accept the recommendations of the report presented to the meeting. It was proposed by Cllr Dowden and seconded by Cllr Phil North, and passed without dissent.