Report of: The External Auditor, Ernst & Young

Purpose of report: To update the Audit and Governance Committee.

Recommendation(s): That the Committee resolves to:

1.    Note and discuss the report.

The External Auditor (EY) had submitted a report to update the Committee.  

The External Auditor, the Chief Executive, and the Financial Accounting Manager were present to respond to questions. 

The External Auditor provided a comprehensive summary of the report which included the conclusions of the audit and commentary on value for money work. The Committee heard a summary of matters relating to weaknesses relating to governance arrangements in place to support the external audit and recommendations of the External Auditor to improve this, including a workflow review, and reviews of capacity, resources and responsibilities within the finance directorate. The External Auditor noted that necessary plans have now been made and shared within a management plan amongst CLT. The Committee was also assured that EY is keen to work with the Council on these matters and has met in the intervening period to establish progress ahead of the next audit; work is also ongoing with the new Group Finance Director to obtain any formal responses previously requested. The External Auditor emphasised that if progress relating to governance arrangements does not continue to make progress, then escalation to section 24 recommendations may be necessary.  

The Chair invited the Chief Executive to respond. 

The Chief Executive welcomed the new Group Finance Director and noted their conversations relating to matters included within the External Audit. The Committee was assured that the Council’s senior leadership team is alert to the seriousness of the situation and is taking steps to make the necessary improvements. The Chief Executive outlined that a comprehensive action plan has been developed to address the recommendations. In relation to property issues specifically, the Committee heard that progress is being made, and additional meetings has taken place with the External Auditor to plan a workable solution. In relation to capacity and resourcing, the Chief Executive noted that a review has been undertaken, and context relating to long term sickness and vacancies was noted. In respect of quality and timeliness of responses, Members heard that the senior leadership team has discussed the matter and is ensuring that support is being provided to the finance team where necessary; the action plan also notes the necessary actions for this. Progress on the action plan will be reported to the senior leadership team on a regular ongoing basis. The Chief Executive reiterated a willingness to work closely with the External Auditors and explore ways to improve the process to make necessary adjustments to new audit requirements, for example, early clarification of the requirements of working papers.  

Councillor Regisford joined the meeting. 

The Chair thanked the Chief Executive and requested that the Committee be given sight of the action plan; the Chief Executive committed to sharing this.  

The Chair invited the Director of Law, Governance and Strategy to comment.  

The Director of Law, Governance and Strategy clarified that the governance issues noted within the External Auditor’s report relate more to operational audit aspects, and not the governance of the Council in the sense that is outlined within the Annual Governance Statement.  

The Chair invited the Group Finance Director to comment.  

The Group Finance Director emphasised his commitment to working with the External Auditors on the matters raised and emphasised his collaboration with the Financial Accounting Manager to deliver on the requirements of the action plan. The Committee heard that since joining the Council, he has met with the External Auditors and has implemented regular catchups going forwards in addition to those which take place at the operational level. Members were also informed that the closure of accounts was brought forward this year. In relation to governance, it was noted that the statutory officers will have regular discussions to ensure awareness and appropriate planning is in place to address any issues arising.  

The Chair invited the Financial Accounting Manager to comment in relation to the statement of accounts.  

The Financial Accounting Manager informed the Committee that in addition to those already mentioned, internal meetings have also taken place within the finance team to discuss the highlighted problems and to develop solutions for the next year. The Committee was assured that officers are motivated to take the necessary actions, and reviews of workflows are ongoing to avoid bottlenecks. The Financial Accounting Manager noted his positivity in relation to the coming year.    

The Chair invited questions from the Committee.   

Councillor Ottino queried the timeframe for resolutions to points on the action plan being reached and asked whether there are any anticipated barriers. Councillor Ottino also queried whether the mention of failures to provide sufficient responses relate to only senior management, or whether it is a council-wide issue.  

The Group Finance Director emphasised that the focus must not just be on speed in relation to the action plan, but also on delivering outcomes in the correct sequence to ensure that actions are sustainable in the longer term. An update on ongoing actions linked to additional resourcing was provided, and an explanation of the time taken to understand some issues more deeply was delivered.  

In response to Councillor Ottino, the Chief Executive also explained that the Council is currently handling additional workloads, such as Local Government Reorganisation preparations, and these have been factored into the next business plan to ensure capacity is appropriately allocated. The Committee was also informed that CLT utilises a dashboard which enables outstanding actions to be tracked and for concerns to be escalated; this ensures that risks are actively tracked.  

Councillor Smith emphasised the seriousness of the External Audit report and requested sight of the action plan. In relation to capacity, Councillor Smith noted that that the Council has historically made mistakes which are now being compounded by additional current workloads. It was suggested that to support governance, independent observers be appointed to the Committee.  

The Financial Accounting Manager emphasised the importance of buy-in from senior managers in relation to the action plan. Historic issues with capacity within the finance team were outlined in detail, and the Committee heard of the Financial Accounting Manager’s confidence for the year ahead. 

The Group Finance Director, in response to Councillor Smith, committed to sharing the action plan and offered an informal meeting to discuss it. The Committee also heard of the specific actions required to ensure that the Council is in a strong financial position ahead of Local Government Reorganisation, and to ensure a fair set of accounts for the next two years when transferring assets and liabilities into the new authority following LGR. 

Councillor Smith appreciated the offer of an informal meeting and asked whether there are timescales set within the action plan; this was confirmed.   

The Chief Executive welcomed the Committee’s view of the action plan, noting that it would help illustrate the granularity of the steps being taken. 

The Chair queried whether issues relating to floorplans of Council properties had been resolved.  

The Group Finance Director outlined that a way forward has been found, however this is yet to be actioned. The Committee understood that this plan would be developed in partnership with the External Auditors. 

Councillor Ottino queried whether there is a plan ready in the instance that staffing capacity issues arise again. 

The Group Finance Director emphasised that a focus is being paid to identifying and mitigating risks as early as possible. The Committee were reminded that not all eventualities can be predicted, however the Council will seek to respond and work through any capacity issues as they are encountered following appropriate preparations.  

The Chair requested the External Auditors views on the resolutions outlined during the discussion.  

The External Auditor noted appreciation for the recent and ongoing conversations with the Group Finance Director, emphasising the value of a continuous and communitive approach. Support for the approach being taken by senior managers was noted, and the Committee was reminded that the results of this would be apparent over time. The External Auditor also emphasised that timely and sufficient audit evidence is expected and critical to assessing success. Support was offered in respect of reporting requirements, and it was noted that the level of clarity required must be delivered from teams across the Council. The External Auditor welcomed the additional meetings being put in place.  

Councillor Smith queried whether a review is ongoing into the failure to prevent fraud legislation against the new Home Office guidance, and whether it has been considered within the action plan. 

 
The Director of Law, Governance, and Strategy confirmed that the review is due this financial year and an update would be offered in due course. The Committee understood this will be managed by the policy officer group work program. 

 
Councillor Smith emphasised that this must also include consideration of the procedures of the new act.  

The Financial Accounting Manager reminded the Committee that the accounts had been successfully signed off by the backstop date and published in time; in doing so, the Council was compliant. 

The Committee reviewed and noted the report. 

The Chair thanked Chief Executive and the External Auditor.  

The Chief Executive left the meeting and did not return.