Agenda item

Grant Thornton have issued an Interim External Auditor’s Annual Report for the Council for 2022-23. The report is attached as Appendix A to this report and includes the Council’s response to the report’s recommendations.

The Audit and Governance Committee is recommended to:

1. Note the Interim External Auditor’s Annual Report from Grant Thornton.

2. Agree to monitor the implementation of the recommendations from the report.

Allister Bannin, Deputy Section 151 Officer introduced the report to the Committee. It was advised the report focussed on Value for Money (VFM) and the council’s challenges regarding financial sustainability, namely the use of capitalisation directions to set its budget were reflected in the findings. There had been improvements in the council’s financial and governance arrangements during 2022/23 and 2023/24. The council’s responses to the External Auditor’s recommendations captured improvement work both in 2022/23 and 2023/24, however the financial sustainability of the council would remain an issue until a long-term solution was in place. 

Paul Dossett, Grant Thorton advised the report covered the arrangements in place in 2022/23. The red RAG rating in all areas appeared problematic however the direction of travel arrows indicated improvements were being made. The financial sustainability was the most difficult area to fix and presented a long-term challenge to the council, the governance improvements were furthest ahead, and Housing improvements were in progress. Within the report there were key and improvement recommendations set out in the action plan, along with the council’s responses and a follow up of previous recommendations.

It was noted there had not yet been any response from the Department for Levelling Up, Housing and Communities (DLUHC) following the consultation on plans to implement a backstop for all local authority accounts.

It was advised that the committee would receive an update on VFM in the external auditor’s annual report in November 2024.  

Councillor Jason Cummings, Cabinet Member for Finance advised the report illustrated the council was still on a journey of improvement and noted the importance of the detailed insight provided by the external auditor reporting. The Improvement and Assurance Panel (IAP) had advised that the council was nearly in a position of business as usual, apart from its unsustainable debt burden. Officers advised the external auditor’s reports ensured continued commitment to improvement and culture change within the council.

The Committee queried theChartered Institute of Public Finance and Accountancy (CIPFA) checklist recommended for use in the committee’s self-assessment. Grant Thornton advised the CIPFA checklist covered the expectations of an Audit Committee and sought to capture the effectiveness of the committee in eliciting change within the organisation.

It was noted that CIPFA’s guidance had informed the process of reconstituting the Audit and Governance Committee in 2022. The Committee’s self-assessment would include impact measurement, and this would be circulated to members for input.

The Committee asked whether it was possible for the council to save an additional £38 million each year instead of the continued use of capitalisation directions. Councillor Jason Cummings, Cabinet Member for Finance advised this was considered unsafe for the council’s services, a position supported by the IAP. Figures would be reassessed each year to ascertain the level of any request from central government and any future solution may include a combination of options such as further savings and debt restructure. It was noted that the governance of transformation programme presentation (due at the June 2024 meeting) would sight the Committee on plans to deliver longer term sustainability. Officers advised the transformation plans were aimed at the council’s £100 million gap, aligned to the council’s medium-term financial strategy. The importance of safety to service delivery whilst the council found its route to financial sustainability was noted.

The Committee queried how the recommendations from the report would be tracked, noting the various other improvement recommendations being undertaken across the council. Officers advised reporting on external audit, RIPI and other external review recommendations was brought together in the Annual Governance Statement. The Opening the Books and Capital Framework Improvement Report recommendations were reported via the Revenue and Capital Monitoring Improvements Reporting. 

The Committee queried whether the External Auditors felt the trajectory of improvement within the council was satisfactory, if there were necessary resources to implement the recommendations and whether the auditors had access to all the information they required. Paul Dossett, Grant Thorton advised the mindset within the council continued to be on an upward trajectory. Capacity challenges in areas of Local Authorities generally were noted and Croydon had recognised the need to invest in capacity in key areas such as Finance. This was demonstrated by the council’s intention and request to complete of the annual accounts in full despite the proposed backstop. There had been no issues in accessing information during audits. It was advised the housing challenges were indicative of many councils in London and required significant investment.

The Committee noted its support for the risk management recommendations within the report and queried the scale, anticipated timeline and support the committee could offer around this. Officers advised it was achievable and the council’s risk management system could provide dynamic reporting to provide assurance to the committee on the risk management framework more broadly. The opportunity for the council to seek external support from Zurich was noted. Officers noted the behavioural improvements, bringing together the consideration of risks, performance and finances in monthly meetings between corporate directors and senior leaders.

The Committee RESOLVED, to;  

1.     Note the?Interim External Auditor’s Annual Report from Grant Thornton. 

2.     Agree to monitor the implementation of the recommendations from the report.