Agenda and draft minutes

General Purposes & Audit Committee - Wednesday, 7th October, 2020 5.00 pm

Venue: This meeting is held remotely; to view the meeting, please click here.

Contact: Michelle Ossei-Gerning
020 8726 6000 x84246  Email: michelle.gerning@croydon.gov.uk

Items
No. Item

24/20

Minutes of the Previous Meeting pdf icon PDF 327 KB

To approve the minutes of the meeting held on Tuesday 17 March 2020 as an accurate record.

Minutes:

The minutes of the meeting held on 17 March 2020 were agreed as an accurate record subject to one change (the reference in agenda item 18/20 to a hard Brexit occurring in September 2020 should have read December 2020).

 

25/20

Disclosure of Interests

In accordance with the Council’s Code of Conduct and the statutory provisions of the Localism Act, Members and co-opted Members of the Council are reminded that it is a requirement to register disclosable pecuniary interests (DPIs) and gifts and hospitality to the value of which exceeds £50 or multiple gifts and/or instances of hospitality with a cumulative value of £50 or more when received from a single donor within a rolling twelve month period. In addition, Members and co-opted Members are reminded that unless their disclosable pecuniary interest is registered on the register of interests or is the subject of a pending notification to the Monitoring Officer, they are required to disclose those disclosable pecuniary interests at the meeting. This should be done by completing the Disclosure of Interest form and handing it to the Democratic Services representative at the start of the meeting. The Chair will then invite Members to make their disclosure orally at the commencement of Agenda item 3. Completed disclosure forms will be provided to the Monitoring Officer for inclusion on the Register of Members’ Interests.

Minutes:

Councillor Milson declared that he had commenced a new employed role which was yet to be notified to the register of interests.

 

26/20

Urgent Business (if any)

To receive notice of any business not on the agenda which in the opinion of the Chair, by reason of special circumstances, be considered as a matter of urgency.

Minutes:

There were no items of urgent business.

 

27/20

Presentation on Renewing Croydon: The Plan pdf icon PDF 3 MB

 [To Follow]

Minutes:

The meeting received a detailed presentation entitled Renewing Croydon provided by the Director of Finance, Insurance and Risk. This comprised information on the Finance Review Panel, the Croydon Renewal Plan, the Medium Term Financial Strategy and the first phase of the Finance Review.

 

The objectives and membership of the Finance Review Panel were detailed along with the immediate (in-year) savings workstreams and their consolidation. A summary of savings was presented. It was advised that savings were those that were considered deliverable as opposed to those that had been initially been proposed in the budget. It was highlighted that some savings remained categorised as amber or red denoting that they still required work.

 

The forecast outturn (overspend) was presented. The gross impact of Covid was £70.5m which was reduced to £42m as a result of Government Covid grants. With the impact of exceptional items (UASC) and a £5m contribution to reserves, the overspend was stated at £50.3m to the end of August 2020. Taking into account the savings agreed at Cabinet in September 2020, the remaining overspend to the end of August 2020 was £22.4m.

 

The risks that could increase the overspend figure and the limitations on the Council’s financial resilience were detailed to the meeting. There was mixed confidence in the delivery of in-year savings and there was potential for the Government to apply further requirements on local authorities that would need funding. It was highlighted the 2019/20 accounts were still to be audited and that there might be adjustments to be made with an effect on the in-year budget.

 

The options available to the Council were explained. If the Government were to take control, the Council would not have any budget with which to make decisions. If the Council were to retain control of its budget it could either reconcile this by a process of slicing from budgets or go through a process of reshaping and renewing. The latter was the much better and favoured option.

 

The meeting was reminded of the responsibilities placed on the Chief Finance Officer under the Section 114 directive; that a report was required where expenditure incurred in a financial year was likely to exceed resources. It was explained that in line with Chartered Institute of Public Finance and Accountancy (CIPFA) guidance, the budget work and development of plans meant that a notice had not been issued. A capitalisation direction was explained as gaining Government permission to borrow money for revenue spending which was not usually allowed. A credible delivery plan to ensure that the budget would be balanced over next three years was required as the basis of the submission to Government. An illustration of the costs of borrowing for revenue spending was provided.

 

What needed to be done to successfully secure a capitalisation direction was detailed. This was underpinned by being able to give Government confidence in the Council’s ability to reshape its future. This was being achieved by the work of the Finance Review Panel, the strategic review of group companies  ...  view the full minutes text for item 27/20

28/20

Croydon Finance Review - Phase 1 Report pdf icon PDF 1 MB

For Members to receive, consider and comment on the Croydon Finance Review – Phase 1 report and action plan.

Minutes:

The item was introduced by the Finance Consultant who apologised for the length of the report. This was explained as being caused by the report being based on best practice in local authority finance and therefore was necessarily very detailed. The CIPFA financial management code was cited as the framework used with the resulting work broken into phases in order to make this accessible.  The first of these prioritised the areas most relevant to the Council’s financial situation; financial planning, budget setting, budget monitoring.

 

It was explained that the financial management issues had been recognised in April 2020 at which point the decision had been taken to conduct a root and branch review. This was recognised in setting up the Financial Review Panel and commissioning the Financial Consultant who had an extensive background as a Section 151 officer.

 

The review acknowledged that the management of finances had clearly not been as effective as it needed to be. This was demonstrated by the magnitude of the overspend. This was explained as having been caused by process, culture and governance. The report made 75 recommendations related to the areas of financial planning, budget setting, budget monitoring. It was explained that Members would be given a further opportunity to ask questions on the report. It had been thought important to bring the report to the meeting to demonstrate the work being undertaken and to show that urgent action was being taken to address the issues identified. It was described how a new budget process had been put in place over the summer. This included increasing budget monitoring to make it a monthly activity rather than quarterly. Medium term financial planning was being put in place as this had last been refreshed in 2018.

 

In response to a question from a Member regarding Best Practice Recommendation 23, the Financial Consultant gave reassurance that capital investment decisions had been made correctly as these had been agreed by full Council as required. The best practice recommendation referred to the quality of advice provided to Members when taking decisions.  It had been set out in the financial regulations that the Growth Board was the internal vehicle to enable proper discussion about capital decisions. This was to allow all information to be tested before going forward to Members for decision. However, the Growth Board fell into disuse after it had been considered not to be working effectively. It had been the intention that this be replaced with part of its function being fulfilled by the Asset Board. It was explained that it did not mean discussion did not happen or that the decisions were wrong but that the Growth Board did not function which was in breach of the financial regulations. There had been an intention to change financial regulations but this had been overlooked.

 

In response to a further question from a Member regarding Best Practice Recommendation 46, the Financial Consultant provided additional information regarding how the correct level of reserves should be determined. It was described  ...  view the full minutes text for item 28/20

29/20

Financial Performance Report pdf icon PDF 883 KB

This report updates Members on the Council’s financial outlook at the end of the first quarter of 2020/21.

Minutes:

The Director of Finance, Investment and Risk clarified that this report was the same as presented at Cabinet on 21 September 2020 and Council on 28 September 2020. It was being provided to the Committee for completeness and was for noting.

 

RESOLVED: The Committee AGREED to note the Financial Performance Report for Quarter 1 June 2020.

 

30/20

Treasury Management Strategy Statement and Annual Investment Strategy End of Year Review 2019/2020 pdf icon PDF 712 KB

This report details the Council’s Treasury Management activities for the year 2019/2020 and demonstrates its compliance with the 2017 Prudential Code for Capital Finance.

Minutes:

The item was introduced by the Head of Pensions and Treasury. It was explained that the report was retrospective, looking back at the 2019/20 financial year. Its objectives were threefold: 1) to show compliance with the three strategies governing Treasury Management, 2) to review activity over the year and 3) show compliance with the set of prudential indicators designed to given assurance that capital investment was prudential, sustainable and affordable. It was explained that the report provided a commentary on interest rates and inflation which were seen as the most significant risk to Treasury Management. The Treasury and Investment Strategies were reviewed within the report along with borrowing, capital expenditure and investment. Debt rescheduling was considered but this was not considered financially advantageous over the last period and therefore had not happened. Up-to-date prudential indicators were included along with the outturn report for the treasury function.

 

A Member posed a question regarding the operational boundary and authorised limit. It was stated that both had raised significantly over the last six years and therefore it was questioned what would happened to them given the Council’s current financial position and anticipated rationalisation. Specifically, the Member wanted to know what would happened should the limits drop below the current borrowing level.

 

In response, the Head of Pensions and Treasury explained that in practice the operational boundary and authorised limit were always above the borrowing level due to the way they were calculated. However, should they become temporarily inverted this would have to be reported and an explanation provided.  The operational boundary and authorised limit existed to give elected Members an indication of the extent to which capital expenditure and borrowing were within an overall plan. Where the level of capital investment and associated borrowing was being reduced, because The Prudential Indicators were calculated on an aggregation for the previous year, the indicators relating to the levels of debt would operate like a ratchet meaning that they would not decrease. The only way in which they could be eroded would be by contributing more to the minimum revenue provision.

 

It was the duration of the debt which was significant. The opportunity for this to be repaid as it matured was constrained by the fact that as debt had been taken out, the point of maturity had been spread over a range of dates up to as much as 70 years into the future. The rationale was to have approximately £10 – 20m of debt maturing at any time. It would be at the point debt was maturing that it would be considered whether or not that this should be repaid. However, over the recent period borrowing had been so cost effective that it had not been consider worth repaying. It was described how the cost of the Council’s debt portfolio at the time of the meeting was 2.7%. It was considered remiss for debt to be repaid when it could be replaced with such cheap borrowing. In summary, it was a ratchet mechanism that  ...  view the full minutes text for item 30/20

31/20

Head of Internal Audit Annual Report pdf icon PDF 354 KB

 

This report details the work completed by Internal Audit in 2019/20 and the overall levels of assurance for the Council’s internal control environment to support the Annual Governance Statement (AGS).

Additional documents:

Minutes:

The Head of Internal Audit introduced the item by highlighting that his annual report had only provided limited assurance. It was described how there had been a steady pattern over the last five years with the number of limited assurance finalised internal audits having increased whilst those judged substantial had declined. Over half of all internal audits (52%) during 2019/20 had a Limited or No assurance outcome.

 

It was described how from the outcome of internal audits conducted in 2019/20, it had been demonstrated that Key Financial and ICT systems were considered to be operating appropriately. However, the same could not be said for Operational and Departmental Systems along with Schools. With regard to the audits for both, over 60% showed issues. As a result, action plans had been agreed and were being followed-up. Many actions were reported as having been implemented but the rate of progress was slowing demonstrating that staff were under pressure.

 

Any areas of particular weakness were to be carried forward and featured in the Annual Governance Statement. These areas were contracts, financial management in social care teams, energy recharges to external organisations, privacy notices relating to the collection of personal data, schools in financial deficit with some weak financial control and the claiming, approving and recording of staff expenses. In order to bring greater focus to addressing areas of weakness, it had been agreed that action plans would have to be signed by the relevant Executive Director, they would then be responsible for the implementation of the action plan.

 

The Head of Internal Audit would also more frequently attend Departmental Leadership Team (DLT) meetings to discuss issues being reported to the Committee.  The Head of Internal Audit would also be attending Executive Leadership Team (ELT) meetings prior to Committee meetings to ensure awareness of all the issues being raised. Assurance was given from already having attended two ELT meetings and a Corporate Leadership Team meeting where there was support for all the action being taken.

 

In response to a Member question, the Head of Internal Audit clarified that political oversight of the rise in the limited assurance categorisation was through the Committee to which the Cabinet Member for Finance and Resources was usually in attendance.

 

The Head of Internal Audit, in a response to a Member question, clarified that the issue regarding staff expenses did not concern fraudulent activity. Rather this was related to issues such as claiming after the permitted timeframe had expired, incorrect categorisation and claiming incorrectly where not entitled. It was confirmed to the meeting that the Council had a whistleblowing policy which was supported by a third party organisation to which disclosures could be made. The reference to union involvement was simply acknowledgement of the agreement that any change to the staff expenses policy also had to be agreed with representative unions.

 

In response to a Member question, the Head of Internal Audit, explained that where more than half of audits had obtained a limited assurance, this had to be reflected  ...  view the full minutes text for item 31/20

32/20

Annual Governance Statement 2019/20 pdf icon PDF 223 KB

This report details the Annual Governance Statement (AGS) for 2019/20. 

Additional documents:

Minutes:

The Head of Finance, Insurance & Risk explained that the Annual Governance Statement was part of the annual accounts process as required by the CIPFA Solace framework (Delivering Good Governance in Local Government). It provided a retrospective view of governance arrangements for 2019/20. It was acknowledged that a lot of change had occurred over the previous six months.  The statement was drawn from two main sources; the Head of Internal Audit Annual Report and the main risks from the Corporate Risk Register. The risks of significant concern detailed in the report were highlighted to Members and were summarised as around finance and the demand budget gap. These were acknowledged to pre-date the impact of Covid and had featured in the previous two budget years.

 

In response to a Member comment highlighting the risk associated with the long-term continued dependence on interim resources by Children’s Services, the Head of Insurance & Risk acknowledge that in common with other authorities recruitment of permanent staff for Children’s Services was a challenge.  This could not be addressed through a single solution but would continue to be the subject of a range of measures.

 

In response to a Member question regarding the risk to the Council posed by the financial failure of a local authority school, the Director of Finance and Risk acknowledged that this was being closely monitored. It was described how the Children, Families and Education Department had good financial tracking mechanism and that meetings were being held with schools. The assets of any local authority school that closed would return to the Council and therefore would be used to offset any deficit.

 

The Head of Insurance and Risk acknowledged the risk of the request to MHCLG for a capitalisation direction not being agreed. However, it was highlighted that the Annual Governance Statement was retrospective for 2019/20. It was envisaged that this would be included in the half year annual statement.

 

The meeting discussed the degree to which the impact of Covid on performance should be reflected in the Annual Governance Statement given this only occurred towards the very end of the period covered. It was suggested by a Member that as drafted, that this did not strike the right balance. The Head of Insurance & Risk acknowledged the difficulty of getting this right. The Director of Finance, Insurance and Risk suggested that the balance was correct but that it would be reviewed again before final sign-off. Ultimately this was for determination by the Leader and the Chief Executive. The Member stated they would provide some suggested revisions.

 

RESOLVED: The Committee AGREED the recommendations in the report:

 

1.    Approved the content of the Annual Governance Statement for the year 2019/20 at appendix 1 in the report.

2.    Agreed the statement on ‘outcomes’ in relation to ‘Issues raised in 2018/19 Statement and progress to date’. (Appendix 1, Table 2 in the report)

3.    Agreed the significant governance issues identified in relation to 2019/20 and the actions being taken to mitigate those risks.(Appendix 1, Table 1 in  ...  view the full minutes text for item 32/20

33/20

Anti-Fraud Update Report pdf icon PDF 406 KB

This report details the performance of the Council’s Corporate Anti-Fraud Team (CAFT) and includes details of the team’s performance together with an update on developments during the period 1 April 2020 – 31 August 2020.

Minutes:

Councillor Prince left to attend a further meeting.

 

The item was introduced by the Head of Anti-Fraud who explained the report was brief because like other services, the work had been put on hold at the start of lockdown with resource redeployed to assist with the Council’s emergency response. As a result, as shown in table 3.3, performance to date was at considerable variance from the targets set at the start of the calendar year.  Activity had recommenced and was described as building momentum with the backlog in cases being addressed. It was highlighted to the Committee that cases were being picked-up where Covid business grants had been paid out incorrectly. 

 

The Chair noted that fraudulent claims were inevitable especially where pressure had been applied to make allocations at speed. A good job had been done in distributing the funds and the request was made for thanks to be given to officers.  The meeting discussed the risks of fraudulent claims being made given the speed at which allocations were made. The Head of Anti-Fraud explained that whilst the level of fraud experienced by Croydon in the distribution of Covid business grants had not been benchmarked, there was anecdotal evidence that Croydon’s numbers were low.

 

RESOLVED: The Committee AGREED to note the Anti-Fraud Update Report.

 

34/20

Internal Audit Review of Effectiveness pdf icon PDF 266 KB

This report details the Director of Finance, Investment & Risk (Section 151 Officer)’s review of the effectiveness of the Council’s internal audit.

Minutes:

The Director of Finance, Investment and Risk introduced the item. It was explaining that this was an Annual Report to the Committee giving an assessment of the internal audit function for 2019/20. This was being presented late due to the impact of Covid.

 

It was highlighted that there was more work to be done to finalise the Annual Audit Plan for 2019/20. An internal review had been completed on the function of internal audits. The Committee was reminded that this service was delivered by Mazars under contract.  This contract had been re-let in 2018 for 6 years with the option of a two year extension.

 

A peer review of the audit function had been conducted by another local authority in 2015/16 with a good result. It had been hoped that another peer review would have been undertaken in 2020 but this had also been delayed by Covid. It was hoped this would be delivered in 2021. 

 

Performance was reviewed with it being highlighted that this was slightly below target. However, as already explained to the meeting by the Head of Internal Audit, it was hoped that this position would be recouped. Progress with the issuing of reports was slightly behind but it was stressed that the report did also contain good performance data.

 

Croydon participated in the CIPFA annual audit club which provided benchmarking against other boroughs. This demonstrated good performance in some areas such as low costs per day leading to good level of activity and reports.  Stakeholder audit feedback scored 100% on usefulness with an overall score of 92% which was compared with 75% in 2006/7. This demonstrated a good improvement in the quality of the audit work undertaken.

 

As a result of the self-assessment undertaken, it had been determined that the audit function generally conformed to standards. This meant the service had been judged to be demonstrating effectiveness for money. Whilst there was work that needed to be completed, the Director of Finance, Investment and Risk determined that she was satisfied with the quality of work of the internal audit function. This was described as incredibly thorough with there being no fear in issuing reports with recommendations.

 

A Member highlighted that it seemed unusual that the Director of Finance, Investment and Risk and Internal Audit were producing reports on each other’s functions. It was noted that this would not happen in the private sector. It was asked if this structure was typical for local authorities. The Director of Finance, Investment and Risk confirmed that it was a similar structure across local authorities but that the Head of Internal Audit had a direct line to the Chief Executive should it be judged that something was not being administered appropriately. The Member stated that he would like to look at how this was achieved in other Councils just to explore other practice. It was also noted that the peer review would be shared with the Committee once completed. 

 

RESOLVED: The Committee AGREED to note the Internal Audit Review  ...  view the full minutes text for item 34/20

35/20

Update on In-Year Appointments pdf icon PDF 126 KB

This report updates Members on a number of in-year appointments made by the Council Solicitor or the Scrutiny and Overview Committee under delegated powers since the last meeting of the Committee.

Minutes:

RESOLVED: The Committee AGREED to note in-year appointments as detailed in the report.

 

36/20

Exclusion of Public and Press

The following motion is to be moved and seconded where it is proposed to exclude the press and public from the remainder of a meeting:

 

“That, under Section 100A(4) 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 falling within those paragraphs indicated in Part 1 of Schedule 12A of the Local Government Act 1972, as amended.”

 

Minutes:

This item was not required.