Agenda and minutes

Audit & Governance Committee - Thursday, 19th September, 2024 6.30 pm

Venue: Council Chamber, Town Hall, Katherine Street, Croydon, CR0 1NX

Contact: Tariq Aniemeka-Bailey, Democratic Services  Email: tariq.aniemeka-bailey@croydon.gov.uk

Items
No. Item

87/24

Disclosure of Interests

Disclosure of Interests Members and co-opted Members of the Council are reminded that, in accordance with the Members’ Code of Conduct and the statutory provisions of the Localism Act 2011, they are required to consider in advance of each meeting whether they have a disclosable pecuniary interest (DPI), some other registrable interest (ORI) or a non-registrable interest (NRI) in relation to any matter on the agenda. If advice is needed, Members should contact the Monitoring Officer in good time before the meeting. If any Member or co-opted Member of the Council identifies a DPI or ORI which they have not already registered on the Council’s register of interests or which requires updating, they must urgently complete the disclosure form which can be obtained from Democratic Services at any time, copies of which will be available at the meeting for return to the Monitoring Officer.

Members and co-opted Members are required in general to disclose any relevant DPIs, ORIs or NRIs at the meeting –

·       Where the matter relates to a DPI they may not participate in any discussion or vote on the matter and must not stay in the room unless granted a dispensation.

·       Where the matter directly relates to the financial interest or wellbeing of an ORI they may not vote on the matter unless granted a dispensation.

·       Where a Member or co-opted Member has an NRI which directly relates to or affects their or a relevant person’s financial interest or wellbeing, whether they can participate in any discussion or vote on the matter or stay in the room depends on the detailed rules in paragraphs 7 of Appendix B of the Members’ Code of Conduct.

The Chair will invite Members to make their disclosure of interests orally at the meeting and they will also be recorded in the minutes.

 

Minutes:

There were none.

88/24

Minutes of the Previous Meeting pdf icon PDF 109 KB

To approve the minutes of the meeting held on 18 July 2024 as an accurate record of the proceedings.

Minutes:

The Part A minutes of the meeting held on 18 July 2024 were approved as an accurate record.

89/24

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.

90/24

Audit & Governance Committee Action Log pdf icon PDF 512 KB

To review the Audit and Governance Committee Action Log.

Minutes:

The Committee noted the updated action log and the inclusion of an annual item formalising the Chair of Scrutiny and Overview Committee’s attendance.

91/24

Committee Work Programme 2024/25 and Assurance Mapping Document pdf icon PDF 314 KB

To review the Committee Work Programme for the remainder of the municipal year and the Committee’s Assurance Mapping Document.

Additional documents:

Minutes:

The Committee noted the work programme for the remainder of the municipal year with the following ammendment:

 

-       External Audit Fees Report moved from October  2024 to November 2024 meeting.


The Committee noted the Assurance Mapping document, and that following publication of the Annual Report, it would be good practice for the Committee to review the Assurance Mapping document on an annual basis.

92/24

Report on outstanding Financial Statements / Accounts

To receive a verbal update from Jane West, Section 151 Officer on the outstanding Financial Statements / Accounts.

Minutes:

Paul Dossett, Grant Thornton and Jane West, Section 151 Officer provided a verbal update to the Committee on the outstanding Financial Statements.

 

Paul Dossett, Grant Thornton advised the Committee:

 

Government regulations to implement the Local Government Financial Statements backstop was expected to come into force from 19 October 2024, this would require all audits up to 2022/23 to be signed off by 13 December 2024. Incomplete audits subject to the backstop would be disclaimed by the external auditors, with an explanation reported to the Audit & Governance Committee. For Croydon this would be applicable to the 2021/22 and 2022/23 audits as only the value for money audit work had been undertaken for these years.

 

For the 2023/24 accounts, the backstop framework provided a deadline of 28 February 2025, this timeframe presented a challenge for many councils to produce accounts and it was anticipated they would be disclaimed by the external auditors anyway.

 

Croydon’s 2019/20 audit had been completed and reported to the Committee, however a new national technical issue regarding pension deficits and pension contributions was delaying its finalisation. Croydon's position was that the technicality would not require an amendment to the 2019/20 accounts and it was noted this issue did not affect the council's general fund. Grant Thornton were in the final process of dealing with the issue and confident the 2019/20 would be signed off in September 2024.

 

The 2020/21 external audit work had started in July 2024 and an audit findings report would be presented to the October Audit & Governance Committee. The work so far had revealed issues with staff turnover and risk of audit inherited from 2019/20. The disclaimed 2019/20 accounts also meant no real assurance could be gained from the completion of 2020/21. It had been agreed continuation of the audit work was not a good use of resources when it was unlikely to meet the December backstop deadline.

 

Jane West, Section 151 Officer noted the difficulties with Grant Thornton finalising the 2019/20 accounts had indicated it was unlikely for the 2020/21 to meet the backstop deadline. The 2020/21 external audit report would be high level, based on the work done so far.

 

The council was focussing its resources on completing 2021/22 and 2022/23 accounts as required by the backstop regulations.

 

The council had written to the Ministry of Housing, Communities and Local Government (MHCLG) to emphasise Croydon's preference to complete the financial accounts in full, owing to the historical financial issues. It still appeared the council would be subject to the backstop regulations which did not allow for exemptions until 2023/24.

 

For 2023/24 the backstop regulations referenced an exemption if there were value for money issues, however the external auditors did not expect Croydon to qualify for this due to improvements, as reported in the external audit value for money reports in the years since 2021/22 and anticipated in 2023/24. It was therefore not expected the 2023/24 audit could be completed in line with the 28 February 2024 deadline.

 

The next set of audited accounts  ...  view the full minutes text for item 92/24

93/24

Annual Governance Statement 2023/24 and Action Plan pdf icon PDF 564 KB

The Council must conduct a review, at least annually, of the effectiveness of its systems of internal control and prepare an Annual Governance Statement reporting on the review with the Statement of Accounts. This report sets out the Council’s Annual Governance Statement (AGS) 2023/24 for the period ending March 2023 and the Statement includes the Council’s significant challenges and risk, the governance arrangement and internal controls in place, and improvements required which are set out in the AGS 2024/25 Action Plan.

 

The Committee is asked to consider the draft AGS 2023/24 and the Action Plan for 2024/25; the Local Code of Corporate Governance; and the Governance Framework.

Additional documents:

Minutes:

Stephen Lawrence-Orumwense, Monitoring Officer provided an overview presentation on the Annual Governance Statement 2023/24 Report and Action Plan to the Committee.

 

It was noted that the council was required to undertake a review of its governance arrangements annually and publish the findings within an Annual Governance Statement. The CIPFA guidance which set out expectations were noted and had been followed. 

 

As included within the report, significant progress was noted against 2022/23 AGS actions regarding:

 

  • Financial Management
  • Capital Projects and Programmes
  • Housing Improvements
  • Strengthened Governance Framework
  • Information Management
  • Procurement and Contract Management
  • RIPI 2 Recommendations
  • Secretary of State Directions to comply with best value duty.

 

Challenges highlighted within the AGS 2023/24 report included:

 

  • The council’s financial sustainability, service performance and compliance with systems of internal controls.
  • Delivery on the IAP Exit Strategy and Action Plan
  • The Head of Internal Audit’s Annual Report which provided limited assurance and found 75% control weaknesses in internal audits
  • Directors’ statement of assurance suggesting gaps in staff awareness and compliance with council policies and procedures.
  • Complaints handling and compliance with Local Governance Ombudsman recommendations.

 

Compliance and continued improvements in these areas were captured within the IAP Exit Strategy 2023-25, the Council’s Improvement Plan 2022-27, Future Croydon Transformation Plan 2024-29 and actions in response to External and Internal Audit report. Overall, these would form part of the 2023/24 AGS Action plan. Actions would be monitored via the council’s Internal Control Boards (ICBs), the Corporate Management Team (CMT) and through regular updates to the Audit and Governance Committee.

 

Officers provided an overview of the 2023/24 AGS Action plan and agreed to circulate the presentation slides to the Committee.

 

The Committee asked whether Corporate Directors had signed of their respective areas within the AGS, to provide assurance of their ownership and oversight of the requirements. It was confirmed that the draft AGS had been signed off by the Corporate Management Team and Chief Executive. Corporate Directors had reviewed the action statements and were sighted on the issues identified.

 

The Committee queried the assessment of the council's ‘effective internal controls’ detailed within the AGS compared to the Head of Internal Audit Annual Report’s outcome of ‘limited assurance’.

 

Officers advised the Governance Framework itself was fit for purpose however there were issues with compliance to the framework and internal control arrangements. The Committee commented that if the internal control framework was not being complied with, it felt the framework was not 'effective'.

 

The Committee thanked officers for the detailed description and work which had gone into the Annual Governance Statement. Clarification was sought on the complaints section of the report noting there were no numbers or trend statistics. It was advised there was an annual report on complaints received by Scrutiny and Overview Committee.

 

The Committee queried why the External Quality Assessment review of Internal Audit had not taken place since 2016. Officers advised this was due to staff changes and delays, it was overdue and rescheduled to take place before March 2025.

 

Officers clarified the distinction between the council's governance  ...  view the full minutes text for item 93/24

94/24

Risk Deep Dive - Public Switched Telephone Network pdf icon PDF 129 KB

The presentations updates the Audit & Governance Committee Members on progress against selected entries from the corporate risk register (the register).

 

Additional documents:

Minutes:

Malcom Davies, Head of Insurance, Anti-Fraud & Risk introduced the report noting the Committee had requested a risk deep dive on the corporate risk register entry: CDS0043 Public Switched Telephone Network. This was currently rated a red risk due to the complexity of and challenges around the issue.

 

Michael Bishop, Interim Head of Digital Services Access & Reach presented the risk deep dive presentation on CDS0043 Public Switched Telephone Network, as available at Item 9. Risk Deep Dive, Public Switched Telephone Network Appendix 1 of the agenda pack.

 

An audit had been undertaken to identify the organisational risks associated with the decommissioning of the network and was set out in Phase 1 - Key Deliverables of the presentation. The largest area of risk currently identified was to individual Telecare users, this area was a separate project being delivered by the Adult Social Services Team.

 

For Phase 2 – Implementation, following analysis of the audit findings, a business case and funding would need to be sought for implementation.

 

The Committee advised it would be useful to have future reporting on the audit findings and associated costs of implementation.

 

The Committee sought assurance on the service having found all the PSTN reliant infrastructure and asked if work had been done to identify non council owned lines which could potentially impact council infrastructure.

 

Officers advised it was difficult to give full reassurance on this, the collaborative implementation approach was expected to flag up if any sites were missed. The current understanding of sites was based on the quality of information from the Facilities Management Team. The project required understanding of the risks and engagement from staff across the organisation.

 

The Committee noted the audit process had found the council was paying for more lines than were being used and asked if this was likely the case with other council utilities which may not have been reviewed.

 

Officers reassured the Committee that all assets had been mapped as part of the asset disposal programme. Item 10. 2018/19 Energy Recharges provided assurance on identifying utilities in properties requiring recovery. Visibility and clarity of all utility costs across the council's asset portfolio was improving. 

 

The Committee requested assurance that the Telecare element of the project was integrated into the wider work and asked if the relevant director could come to the committee when the next report for the next PSTN update. Officers clarified the Resources and Croydon Digital Service (CDS) Teams were leading on the project on behalf of the whole council and this area could be directly addressed in the future report to the Committee.

 

The Committee also requested reassurance that the costs were under control and providing best value despite the deadlines.

 

Councillor Ben Hassell, Chair of Scrutiny and Overview Committee echoed the importance of the team having oversight of the Telecare element of the project and noted the associated safeguarding risks. They queried if there would be a risk mitigation plan developed with Adult Social Care, whether learning from other Local Authorities facing the same  ...  view the full minutes text for item 94/24

95/24

2018/19 Energy Recharges Recommendations Progress Report pdf icon PDF 102 KB

This report gives an update on the response to the recommendations in the 2018/19 Energy Recharges Internal Audit Report carried out by Mazars in June 2019.

 

Minutes:

Huw Rhys-Lewis, Interim Director of Commercial Investment & Capital introduced the report to the Committee.

 

It was advised that a detailed review had been undertaken to meet the Energy Recharges Internal Audit recommendations and to recover debt of unpaid charges. In 2023/24 £2.3 million had been recovered from schools and a second tranche was ongoing with £800,000 expected to be recovered in 2024/25. Water bills were now being reviewed and a further £800,000 was recovery was expected, totalling recovery of more than £3 million during a two-year period. The improvements to the Utilities Team’s approach and monitoring were noted. 

 

The Committee RESOLVED, to:

 

1.     Note the actions taken to date to address the recommendations of the 2018/19 Energy Recharges Internal Audit Report carried out by Mazars in June 2019

 

2.    Following the good progress that has been made on recommendations in both the audit report and previous reports to this committee, it is recommended that this be the final progress report.

 

96/24

Annual Treasury Management Report 23-24 pdf icon PDF 554 KB

This Report reviews the Council’s Treasury Management activities for the year 2023/24. It is prepared in accordance with the requirements of the Chartered Institute of Public Finance and Accountancy (CIPFA) codes of practice in respect of capital finance and treasury management.  The codes recommend that Members are advised of the treasury management activities for the whole of each financial year and of compliance with the various strategies and policies agreed by the Council.  The report:

 

·       Reviews compliance with the Treasury Management Strategy Statement, Capital Strategy and Annual Investment Strategy as agreed by full Council (Budget Council) on 8 March 2023 (Minute 37/21 applies);

·       Reviews treasury borrowing and investment activity for the period 1 April 2023 to 31 March 2024; and

·       Demonstrates compliance with agreed Treasury and Prudential Indicators and the CIPFA 2021 Prudential Code for Capital Finance.

 

Minutes:

Matthew Hallett, Head of Pensions & Treasury Management introduced the report to the Committee and highlighted key figures set out in the data tables within the report. It was noted:

 

  • Capital Expenditure Provisional outturn for 2023/24 totalled £130.6 million, a fair proportion of this related to the capitalisation direction.
  • Any capital expenditure not covered by receipts, grants etc. was financed by borrowing and the General Fund borrowing requirement in 2023/24 was £15.4 million.
  • The authorised capital borrowing limit £1.553 billion had not been breached.
  • Financing costs as a proportion of net revenue stream (General Fund) was 17.0%, significantly higher than other local authorities and illustrative of the issue of Croydon's debt. An ideal maximum would be 10%.
  • The actual debt during the year starting and ending balances remained the same. During the year matured debt was refinanced and equated to additional PWLB debt of £230 million.
  • The average interest rate for the council's debt was 3.38% and illustrated the issue was the size of debt rather than the cost.
  • Most debt was maturing in over 5 years, with the average maturity at 20 years.
  • Regarding investments, the council was focussed on maintaining minimum balances and repaying debt rather than investing excess balances. Any investments were with other Locals or AAA rated money market funds.
  • Borrowing costs for the year were £58 million on the General Fund to service the debt.

 

The Committee queried the strategy to reduce the value of the debt and if there was any assurance that the debt would go down.

 

Officers advised of the council's request to Government seeking a £540 million write off which would bring Croydon in line with other local authorities and eliminate the £38 million capitalisation direction. The Medium-Term Financial strategy aimed to minimise the council’s borrowing; however, this could not be eliminated completely as the council had a responsibility to maintain roads for example. The council was continuing asset sales to general capital receipts, some slippage from last year was now coming through.

 

The Committee queried the lower than anticipated capital expenditure detailed within Table 2 of the report. Officers advised this was both due to slippage in expenditure (expected to balance with capital receipt income this year) and a conscious approach set out in the Capital Strategy to minimise capital spending to essential requirements only.

 

In response to questions officers confirmed the Treasury Management Strategy set the borrowing limit and the council could not borrow above this. It was noted that the capitalisation direction legally gave permission for the council to capitalise revenue which was not usually possible.

 

The Audit and Governance Committee RESOLVED to;

 

2.1 Note the contents of the annual report on the treasury management activity for 2023/24.

 

97/24

Annual Head of Internal Audit Report pdf icon PDF 137 KB

This report details the work completed by Internal Audit in 2023/24 and the overall level of assurance for the Council’s internal control environment to support the Annual Governance Statement (AGS).  The AGS is included on the agenda for this committee and will be published on the Council’s website in due course alongside the final accounts.

 

From the Internal Audit work undertaken in 2023/24, it is the Interim Head of Internal Audit’s opinion that Internal Audit can provide only Limited Assurance in relation to the system of internal control, and that the internal controls within financial and non-financial systems operating throughout the year were unsatisfactory in some cases.

 

Additional documents:

Minutes:

Dave Phillips, Head of Internal Audit introduced the report to the Committee noting the Limited Assurance opinion. 75% of individual audits received either No or Limited assurance levels and the key issues detailed within the report were similar to those identified in previous years.

 

The Committee noted the difference in tone between the Internal Audit report and the Annual Governance Statement. It raised concerns that there was a reduction in the assurance in some departments and questioned if the cultural transformation improvements were happening at the intended rate. Officers advised cultural transformation was not happening at the intended rate, however targeted work was being undertaken in recognition of this. Mazars had recently been commissioned to complete a project to highlight areas of cultural improvement and identify actions. Also, a Reed management development programme had been launched during the summer, targeted at middle managers. The programme modules had been developed with subject matter experts from across the council (e.g. finance and performance management) and had been tailored to issues such as accountability, managing remotely and mental health. This programme was intended to build the effectiveness of the middle management and in turn permeate through to the wider staff.

 

The Committee queried how these improvement activities would be monitored. Officers advised staff expenses and creditors/procure to pay audits which were limited or no assurance, would be repeated and provide monitoring of improvements.

 

The Committee queried if there were consequences to non-compliance with Internal Audit follow ups and whether future increased engagement would indicate improvements. It was advised that the escalation process for non-compliance was very intensive requiring time-consuming chase ups by officers and it was the intention to reduce the time spent on this over the coming year. Regarding escalation, in the case of non-engagement with Internal Audit each audit was escalated to the relevant Director and Corporate Director. Internal Audit reporting was received monthly by CMT and sighted the Chief Executive on any issues. It was advised that non-responsiveness to Internal Audit had contributed to a staff member leaving the council earlier in the year.

 

A further Internal Audit session for CMT with Mazars was planned with the intention for the council to reach full assurance by the end of 2024/25. Internal Audit recommendations monitoring had also been included in the newly adopted performance management dashboard received by CMT. The Committee supported the target to reach position of full assurance and requested an Internal Audit Engagement Improvement Action Plan and an update following CMT's engagement with Mazars.

 

The Committee raised concerns that the following issues within the report were unacceptable: the pattern of the report findings, the completion rate of recommendations and the number of audits in draft at August 2024. It was concerned that these issues had also been seen in the previous year’s report. The Committee noted the need for Internal Audit to be taken seriously by organisation, to enable both organisational effectiveness and the Committee’s effectiveness.

 

The Committee discussed potential to monitor the implementation of Internal Audit actions  ...  view the full minutes text for item 97/24

98/24

Audit and Governance Committee Annual Report 2024-25 pdf icon PDF 194 KB

The Committee is to receive a report, which highlights the work of the Committee over the last year. It also includes a brief forward look into the year ahead on the Committee’s work and developments.

Minutes:

Dr Olu Olasode, Independent Chair of Audit and Governance Committee introduced the Committee Annual Report 2023/24. It was noted that the Committee had received the draft previously and members were invited to suggest any further additions or amendments.

 

It was suggested that the Committee’s oversight of the council’s transformation work should be included in the ‘Looking ahead’ section of the report.

 

Comments from the Committee regarding the tracking of Internal Audit to provide assurance to the Committee that actions were implemented within the agreed timescales would also be included.

 

It was advised the Committee Annual Reported 2023/24 would be reported to Council on 9 October 2024.

99/24

Part A - Corporate Risk Register pdf icon PDF 131 KB

As part of the Audit & Governance Committee’s role, the Committee’s terms of reference include monitoring the Council’s risk management arrangements and  providing independent assurance as to their adequacy.  This report contains details of all of the open Part A risks.  A complementary Part B report contains details of risks with exempt information.

 

Additional documents:

Minutes:

Malcolm Davies, Head of Insurance, Anti-Fraud & Risk introduced the report to the Committee. The developments and enhancements to the risk management framework as detailed within the report were highlighted. Improvement work was ongoing, supported by Risk Champions across departments.

 

The Committee thanked the team for their work to develop the risk management framework and the dashboard reporting.

 

The Committee requested the following risks to be identified for future risk deep dives:

 

-       Risks which had remained red for some time and were suddenly expected to improve.

 

-       Risks which were anticipated to remain red.

 

-       Risks related to the Mayor’s Business Plan and IAP Exit Strategy.

 

-       The Affordable accommodation to meet homelessness demand risk, which had increased and was also related to the Mayor’s Business Plan and IAP Exit Strategy.  

 

 

The Committee RESOLVED;

 

2.1 To note the contents of the corporate risk register as at September 2024 as set out in Appendix 1 Risk Summary Report and Appendix 2 Risk Detail Report.

 

2.2 To agree which risk(s) will be called in for a risk ‘deep dive’ at following meetings of the committee.

100/24

Exclusion of the Press and Public

“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:

RESOLVED that members of the Press and Public be excluded from the remainder of the meeting under Section 100A(4) of the Local Government Act 1972 on the grounds that: (i) it involved the likely disclosure of exempt information as defined in Paragraph 3, Part 1 of Schedule 12A of the Act: and (ii) that the public interest in maintaining the exemption outweighed the public interest in disclosing the information.

 

101/24

Part B - Corporate Risk Management

Minutes:

This item was considered in Part B.

102/24

Minutes of the Previous Meeting (Part B)

To approve the Part B minutes of the meeting held on Thursday 18 July 2024.

Minutes:

This item was considered in Part B.