Venue: Ground Floor Committee Room - Loxley House, Station Street, Nottingham, NG2 3NG. View directions
Contact: Kate Morris 0115 876 4353
Apologies for Absence
Declarations of Interest
In the interests of transparency, in relation to agenda item 4 (External Review of Housing Financial Management and Council Response) Councillor Graham Chapman declared that he is a member of CIPFA and of the Nottingham City Homes Board, but he did not consider these to constitute interests that would require him to leave the meeting.
In the interests of transparency, in relation to agenda item 4 (External Review of Housing Financial Management and Council Response) Councillor Anne Peach declared that her partner is a former member of the Nottingham City Homes Board, but she did not consider this to constitute an interest that would require her to leave the meeting.
Andrew Smith of external auditors Grant Thornton gave a presentation, providing a progress report and general update on the sector. The following points were highlighted:
(a) The position in relation to the financial statements audit for 2019/20 remains largely unchanged from that reported to the Committee in February 2022 as officers are working with new external valuers to gain valuations for specialist properties. This impacts on the financial statements for 2019/20 and 2020/21 and there is no definitive timeline for when updated 2019/20 accounts will be available.
(b) High level initial planning for the 2020/21 audit has been completed but no further work can be done until the 2019/20 audit is completed.
(c) The full 2020/21 Statement of Accounts has not yet been published due to the awaited property valuations and further information required in relation to Robin Hood Energy for the period prior to administration.
(d) Because of the delays to the 2019/20 and 2020/21 financial statements, work on the 2021/22 audit has not yet commenced.
(e) From Audit year 2020/21 onwards, Auditors are required to produce an Auditor’s Annual Report containing a commentary on arrangements to secure value for money and any associated recommendations. This report had been required by 30 September but the deadline has now been extended to allow completion to be postponed to no more than three months after the date of the opinion on the financial statements. The February report set out reasons why the 2019/20 Value for Money conclusion would be likely to be qualified and significant weaknesses in 2020/21.
(f) There are sector wide issues in relation to accounting for infrastructure assets. A CIPFA review is not expected until June or July.
In response to questions from the Committee the following points were highlighted:
(g) The process in relation to Robin Hood Energy is complete but there is one outstanding action with a creditor.
(h) The Finance Team is in a state of flux and staff turnover is a concern. This is a sector wide problem exacerbated by higher rates of pay in the private sector. The external audit recruitment market is also challenging but is being addressed through trainee schemes and international recruitment.
The Committee noted the update.
External Review of Housing Financial Management and Council Response
Councillor David Mellen, Leader of the Council, introduced the item stating that the two investigations into the misattribution of Housing Revenue Account (HRA) funds (conducted by Richard Penn and CIPFA) had been commissioned by the Council in order to identify and understand the extent of the problems. The issues originated several years ago and the aim now is to understand how and why they arose and how they can be prevented from arising again. The Council is already under the observation of an Improvement and Assurance Board who are reporting to the Department for Levelling Up, Housing and Communities including regarding the HRA. The Council is committed to improvement and putting things right.
Clive Heaphy, Interim Corporate Director for Finance and Resources, then gave a presentation covering the following points:
(a) The role of the Audit Committee in relation to the HRA issue and the findings of the Penn and CIPFA reports is to look at the adequacy of the control environment, to understand the steps being taken to rectify the failures and provide assurance that those failures cannot happen again and to identify lessons that can be learned.
(b) The following facts were identified:
· Nottingham City Council is the Local Housing Authority and hold a non-delegable duty to maintain an HRA
· The HRA is ringfenced with permissible transactions set out in law and mandatory guidance
· Nottingham City Homes (NCH) was established as an arms length management organisation (ALMO) to administer housing management and repairs on behalf of the Council
· The assets remain on the Council’s balance sheet and the tenants are the Council’s
· The Council owns NCH and its two subsidiaries. NCH is a Teckal company. Therefore NCH must carry out 80 percent of its trade with the Council and the Council must exercise close control over NCH.
(c) Both the Penn and the CIPFA report identified issues relating to poor governance, culture and financial and operational control environments. The Council must now provide assurance that it has addressed these issues.
(d) The Penn report found:
· Awareness of payments was wide and covered many officers of the Council, NCH and Councillors but officers with the right knowledge were either reassured about legitimacy, ignored or dissuaded from voicing concerns. Some officers failed to demonstrate the necessary standards
· Governance arrangements and the Council’s client role were weak and need strengthening
· NCH’s Articles of Association do not give the Council the required level of control meaning NCH could run to its own agenda
· The Council’s three statutory officers and specialist staff must be respected and given due weight in decision making. Any new proposals in relation to the HRA now go through these officers and a Housing Accountant and Director of Housing have been appointed.
· The role of External Audit should be questioned
· The Constitution and Code of Conduct were in need of review.
(e) The CIPFA report found:
· The Council’s duty to ensure the HRA is dealt with correctly does not cease when it delegates service provision and the Council failed ... view the full minutes text for item 4.