Agenda and minutes

Apologies for absence were received from Councillors Andrea Fraser and Jonathan Solomons.

To confirm as a correct record of the minutes of the Audit Committee meeting held on 27 July 2023.

The Minutes of the Audit Committee meeting held on 27 July 2023 were approved and the Chair was authorised to sign them as a correct record.

Items of other business notified under Council Procedure Rule 30 to be announced, together with the special circumstances that justify their consideration as a matter of urgency. The Chair to rule on the admission of such items.

There were no Items of Other Business.

To receive any declarations of interest.

There were no Declarations of Interest.

The Committee received an update from Mr Simon Luk of EY, the Council’s External Auditors, stating that the Auditors were working on the Council’s 2023 accounts having reviewed the various adjustments to date. The auditors were presently working on the adjustments in relation to Property, Plant and Equipment (PPE), noting that there had been difficulties in relation to PPE and that EY were working with Council officers to resolve these issues.

In addition, there were concerns regarding Rent-to-Mortgage Properties and Unallocated Capital Expenditure and EY was awaiting responses to these issues as well is responses to concerns regarding Lease Workings.

In response to questions by Members, Mr Luk, and Mrs Hannah Doney, Head of Finance, provided the following information.

a)    It was anticipated that the Draft Audit would be completed in time for submission to the December meeting of the Committee;

b)    That the auditors had come to an impasse about the South Oxhey Initiative and would be discussing ways forward with Council officers next week.

Mrs Doney stated that, originally, the South Oxhey Initiative (“the Initiative”) was accounted for as Investment Property (IP) with the Council acquiring parcels of land in 2014/15 which was accounted for as IP until 2017/18. At that time, the Council’s previous External Auditors expressed concerns and proposed that any acquisitions under the Initiative should be regarded as Inventory, which was not part of the Council’s fixed assets and, therefore, subject to a different accounting treatment. In 2019/20, the External Auditors stated that these acquisitions should not be classified as Inventory but as Surplus Assets until the point of disposal of the asset to Countryside, at which time it would become a Finance Lease Asset.

Accordingly, Council officers had completed a lot of work to reclassify the acquisitions as Surplus Assets and to produce the calculations for the Finance Lease Asset that was created when the parcels and phases of development were passed to Countryside. The first block was getting the valuations that were required to establish a fair value to create the Finance Lease Asset at the point of transfer. It took a long time to get the information from the valuers which was then passed to EY who had challenged the robustness of the valuation. This was an issue that could be resolved but was not one that was anticipated at the time of the last Committee meeting.

Because the assets had been reclassified as Surplus Assets, EY wanted to test the additions and the amount that was recognised as Surplus Assets. Therefore, they had asked the Council to provide third-party evidence of all the spend on additions back to 2014/15. In 2014/15, the Council had a different finance system and no longer had all the supporting third-party evidence that EY had requested. In addition, there were gaps in subsequent information held by the Council because the Council had based its record-keeping on a requirement to provide information on assets which were classified as Inventory and not as Surplus Assets. Consequently, because officers  ...  view the full minutes text for item AC22/23

The Head of Finance to provide a verbal update.

Mrs Hannah Doney, Head of Finance, gave a verbal report stating that, because there had been no significant progress in completing the Council’s Statement of Accounts for the years 2019 to 2023 since her last report to the Committee, she would, instead, update the Committee on information expected from the Department for Levelling Up, Housing and Communities (DLUHC) about how local authorities should address the backlog in audits. She also provided an update on the transition to the new External Auditors for 2023/24 onwards.

In her report, Mrs Doney referred to the following matters.

a)    Following consultation, a ministerial statement was expected sometime in the autumn about how to address the audit backlog that was affecting local authorities across the country.

b)    It was anticipated that central government would provide a means by which to draw a line under the Statement of Accounts for previous years, but it was not known how the DLHUC proposed that this be done.

[Mrs Doney then provided some examples of how central Government might propose that this be done].

In response to a Member’s question, Mrs Doney stated that there were several factors that had contributed to the current audit backlog in local authorities, including greater scrutiny of external auditors by the Financial Reporting Council (FRC) resulting in changes in External Audit standards, processes and procedures, including a greater focus on PPE; the Redmond Review recommendations in 2019 on regulating external audits of local authorities in England; difficulties faced by audit firms in recruiting suitably qualified accountants; a reluctance by Audit Firms to carry out local authority audits which were not deemed to be profitable; and the effects of the Covid pandemic, all of which contributed to a “perfect storm”.

Against this backdrop, there were specific problems affecting the Three Rivers District Council 2019/20 Statement of Accounts and that the delay in completing the audit of these accounts further compounding the existing problems outlined in Item 5, above.

RESOLVED: That the Committee note the report.

The Committee considered a report by Mrs Hannah Doney, Head of Finance, advising the Committee on the latest position in respect of the evaluation of financial risks faced by the Council. It was recommended that the Committee review the Risk Register and make any comments it wished to make about individual risks.

Mrs Doney introduced the report, noting that there were no changes to the residual risk score after mitigation, but that officers had updated the inherent risk for risks around inflation and worsening of the Medium-Term Financial Plan (MTFP) position. This reflected the current economic environment, including interest rate risks etc. The residual risk score following implementation of risk controls and mitigation measures had remained the same because the Council was well placed to manage these risks.

There was a good level of general balances which were there to manage financial risk and there was a robust financial planning process. Because there was a good level of general balances in place, this meant that the Council would be able to manage the economic shocks that may emerge because of high inflation, high contract inflation; and higher than budgeted-for pay awards.

In response to questions by Members of the Committee, Mrs Doney provided the following information.

a)    Regarding FIN18, Business Rates Retention, there was a prospect of a change to the Business Rates Retention system. Presently, there was 50% retention which could move to 75% retention, but it was believed that this change had been put back to 2025/26.

The Valuation Agency Office had undertaken a re-evaluation, effective from 1 April 2023, which had significantly increased the rateable value of businesses in the district. Transitional relief was in place for businesses which had seen an increase in valuation. However, as the transitional relief stepped down, it was anticipated that there was a greater risk of appeals against the re-evaluation.

Should the appeals against re-evaluation be successful, this would have a significant impact on the income achieved by the Council as central Government had already fixed the tariffs for the amounts deducted by central Government. Therefore, there was the possibility of the Council’s business rates retention income falling below the Council’s minimum level which would mean that any growth within the Council’s budget would be lost.

Historically, the Council had always been a Member of the Hertfordshire Business Rates Pool (“Business Rates Pool”) which gave the Council the opportunity to retain more of its growth through pooling government funding. However, because of the perceived risk, it was possible that the Council could be financially worse off if it remained a Member of the Business Rates Pool and, therefore, the Council had ceased to be a Member. The Council’s membership of the Business Rates Pool for the year 2024/25 was presently under review. If it were the Council’s intention to rejoin the Business Rates Pool, it would have to give notice of its intention to do so by 10 October 2023.

Should the Council’s Section 151 Officer recommend rejoining the Business  ...  view the full minutes text for item AC24/23

Mrs Hannah Doney, Head of Finance, introduced Paul Grady of the accountancy firm, Azets, and Ms Reshma Ravikumar, who would be the Council’s Key Audit Partner and Audit Manager, respectively. Azets had been appointed through the PSAA (Public Sector Audit Appointments) procurement process and they would be the Council’s auditors for the next five years beginning with the financial year 2023/24.

Mr Grady and Ms Ravikumarintroduced themselves to the Members of the Committee and summarised their experience as auditors and the public sector work conducted by Azets. Mr Grady stated it was planned to start work on the Council’s 2023/24 accounts in the autumn of this year, and to work with the Council as it resolved the backlog in finalising the Council’s accounts from previous years with the current auditors, Ernst and Young (EY).

In response to a Member’s question, Mr Grady stated that Azets were currently working under PSAA arrangements with 27 local authority bodies across England and several large Councils in Scotland. Within Hertfordshire, Azets was working with Watford, East Herts, and Stevenage District Councils.

NOTED

This report details:

a)          Progress made by the Shared Internal Audit Service (SIAS) in delivering the Council’s annual audit plan for 2023/24 as at 15 September 2023.

b)           Proposed amendments to the approved 2023/24 Annual Audit Plan.

c)           Implementation status of all previously agreed audit recommendations from 2019/20 onwards.

d)           An update on performance management information as at 15 September 2023.

Recommendation:

• Note the Internal Audit Progress Report for the period to 15 September 2023
• Approve amendments to the Audit Plan as at 15 September 2023
• Agree changes to the implementation date for 1 audit recommendation (paragraph 2.5) for the reason set out in Appendices 3 to 6
• Agree removal of implemented audit recommendations (Appendices 3 to 6)

The Committee considered a report by the Shared Internal Audit Service (SIAS) regarding the delivery of the Council’s Annual Audit Plan for 2023/24 as of 15 September 2023.

The report proposed one amendment to the approved 2023/24 Annual Audit Plan and updated the Committee on the implementation status of all previously agreed Audit recommendations from 2019/20 onwards, as well as providing an update on Performance Management information as of 15 September 2023.

The Committee Members were recommended to:

1.    Note the Internal Audit Progress Report for the period to 15 September 2023;

2.    Approve the proposed amendment to the 2023/24 Audit Plan;

3.    Agree changes to the implementation date for one audit recommendation (Paragraph 2.5 of the report) for the reason set out in Appendix 5 of the report; and

4.    Agree removal of implemented audit recommendations (Appendices 3 to 6 of the report.)

MrDarren Williams, Head of SIAS, introduced the report, noting that this was the second progress report that the Committee had received for 2023/24. Mr Williams then summarised key parts of the report, as follows.

a)    Page 19: Three Final Internal Audit Reports and been issued since the July Committee, these relating to the areas of Business Continuity Planning; Payroll; and Fixed Asset Register. All three audits had been given a Reasonable Assurance Opinion.

There were two reports in draft, these being the audits of Benefit Systems Parameter Testing, and Taxi Licensing, both of which were awaiting a Management Action Plan.

b)    Page 20: Outstanding Audit Recommendation Follow-Ups. Since the July meeting of the Committee, an extension to an originally proposed implementation date for the Complaints Handling Audit has been requested by management, changing the target date from 31 May to 31 October 2023.

c)    As set out in the Appendices to the report, three of the Audit Recommendations that were reported as outstanding in the July report to the Committee had been implemented.

d)    Page 21: An update on current performance against Key Performance Indicators (KPIs) was provided. The delivery of planned audit days was at 28% against a profile of 32%, that is, 10.5 days behind where officers would have liked to have been at this stage in the year.

e)    Projects to Draft Report Stage by 31 March 2023: 12% had been delivered against the profile of 30%, which was a difference of three projects. Two of these projects: IT Operations, and Safeguarding, were currently in fieldwork.

f)     Mr Williams informed the Committee that a new Indicator, “Planned Projects to Final Report” has been introduced, that is, Final Reports for audits within the plan to be issued by the publication date of the Annual Assurance report. It was highlighted that the first measurement of this indicator could not be reported before May 2024, this being the date of the next Annual Assurance Report would be presented to the Committee.

g)    Client Satisfaction: this was 100% based on two questionnaires out of 13 that had been returned,

Mr Williams introduced Leigha Britnell, who had  ...  view the full minutes text for item AC26/23

The Committee considered a report by Hannah Doney, Head of Finance, setting out the Audit Committee’s latest Work Programme. The purpose of the report was to allow the Committee to review and update the Work Programme.

The Chair invited Members of the Committee to make any comments they might have on the Work Programme.

In response to a Member’s question regarding the 2019/20 Statement of Accounts, Mrs Doney stated the Committee had agreed to delegate authority to officers to approve the Statement of Accounts. Accordingly, it was anticipated that officers would be able to report to the December meeting of the Committee that the accounts had been approved and signed by the Auditors, Chair of the Audit Committee, and Director of Finance.

Mrs Doney stated that, if the accounts had not been signed off by the time of the December meeting of the Committee, Members would be notified of this fact.

Risk Management Training

Mrs Doney noted that, regarding the schedule of training for Committee Members, the Committee was behind on the schedule by one training session. As the agenda for the December meeting of the Committee would include the Risk Management Framework report, and as it was important that the Committee consider the Treasury Management reports scheduled for that meeting, it was proposed that Mr Phil King, the Council’s Risk Manager, when presenting the report, provide a detailed introduction contextualising the content of the report.

Mrs Doney went on to say that if Members of the Committee wished to have training, they inform officers so that this could be included in the Committee’s Work Programme along with any other matters that the Committee might wish to have added to the Work Programme.

NOTED

If the Committee wishes to consider the remaining item in private, it will be appropriate for a resolution to be passed in the following terms:-

“that under Section 100A of the Local Government Act 1972 the press and public be excluded from the meeting for the following item of business on the grounds that it involves the likely disclosure of exempt information as defined under paragraph 3 of Part I of Schedule 12A to the Act. It has been decided by the Council that in all the circumstances, the public interest in maintaining the exemption outweighs the public interest in disclosing the information.”

(Note:  If other confidential business is approved under item 3, it will also be necessary to specify the class of exempt or confidential information in the additional items.)

The Chair moved, duly seconded, the following motion:

“that under Section 100A of the Local Government Act 1972 the press and public be excluded from the meeting for the following items of business on the grounds that it involves the likely disclosure of exempt information as defined under paragraph (X) of Part I of Schedule 12A to the Act. It has been decided by the Council that in all the circumstances, the public interest in maintaining the exemption outweighs the public interest in disclosing the information.”