Report of: the internal auditor BDO

Purpose of report: to present the findings of an audit to provide assurance that the governance arrangements put in place increase the likelihood that the Council will get value for money from its investment in its wholy-owned companies Oxford City Housing Ltd, Oxford Direct Services Trading Ltd, and Oxford Direct Services Ltd.

Recommendation: to discuss and note the report.

The Committee considered the report of the internal auditor BDO setting out the findings of an audit to provide assurance that the governance arrangements put in place increase the likelihood that the Council will obtain value for money from its investment in its wholly-owned companies Oxford City Housing Ltd, Oxford Direct Services Trading Ltd, and Oxford Direct Services Ltd.

Gurpreet Dulay, internal auditor, presented the report and explained that the audit review had looked at, but was not limited to, the following areas:

·       The robustness of the business case supporting the set-up of the companies

·       The governance arrangements for the companies

·       The capacity and capability of the company boards

·       The reporting arrangements to allow the Council, as shareholder, to monitor performance of the companies

·       The extent to which the companies had sought external advice with technical issues such as tax

He said that the audit review had identified a total of 12 risks; 8 of which were categorised as medium and 4 which were categorised as low as detailed in the report. 

The Committee discussed each risk and the associated recommendations in turn.

1A / 1B / 1C – the business case and ongoing business plans of both companies do not demonstrate that the Council’s investment will deliver value for money to the Council (medium risk)

The Committee observed that as the Council’s Medium Term Financial Plan was based on the Direct Services companies delivering a cost reduction it was important to ensure that this saving was taken into account.     In addition the cost base in the Direct Services Business Plan did not include all of the additional costs associated with operating as a company. Some of these, such as corporation tax were subject to external pressures and variations which could have significant implications for the Business Plan.

2B – the Council has not sought appropriate external advice on company structures, TUPE requirements or tax legislation (low risk)

The Committee emphasised the need to ensure that a system was in place to monitor the level of compliance associated with Teckal status and for that information to be reported to the shareholder.

3A / 3B – there is no contract in place setting out how the Council will supply support services to the companies or clear processes for pricing, monitoring and invoicing for staff time and use of the Council’s assets such as IT, property and equipment (low and medium risk)

The Committee were satisfied with the responses to the proposed recommendations.

4A – the reporting and scrutiny arrangements between the Council and the two companies are insufficient (e.g. reporting against business plan) (medium risk)

The Committee acknowledged the concerns raised about the arrangements in place for the companies to report financial and performance information to the shareholder.  The Head of Financial Services assured the Committee that shareholder meetings would be held on a quarterly basis and that the document templates for formal reporting were under development.

5A / 5B – the financial relationship between the Council and both companies – i.e. in terms of loans made to the companies against State Aid considerations and dividends expected from both companies – are not clearly recorded (medium risk)

6A – there are inadequate arrangements in place to track data sharing between the Council and both companies (medium risk)

The Committee were satisfied with the response to the proposed recommendation.

7A / 7B – Company Boards do not include appropriately qualified people, without conflicts of interest, who are appropriately insured and aware of their responsibilities as Directors (low risk)

The Committee noted that the appointment of Non-Executive Directors (NED) to the companies was a matter reserved to the shareholder which should be reviewed at least annually.  There was no legal requirement to appoint a NED but it was generally considered to best practice. The Direct Services companies were in the process of appointing both a Financial Director and a Commercial Director; this approach could be replicated by the Housing Group.

The Committee concluded that in view of the growth aspirations of the Housing Group and the Direct Services companies it was to the Council’s benefit to progress the appointment of Non Executive Directors to the boards of those companies. 

The Committee also felt that there should be some attempt to quantify the lost opportunity costs to the Council for staff working on company business.

The Committee noted the report, the individual recommendations and the responses provided.