Verbal update by external auditors
Minutes:
Andrew Smith, Grant Thornton, gave a verbal update to the Committee highlighting the following information:
a) It is positive that recruitment has been successful and there is now greater capacity within finance teams, however there are still areas that the External Auditor is waiting for information on, for example in relation to valuations and adjustments to the Housing Revenue Account (HRA).
b) The key area that the External Auditor is waiting for information from the Council about is the extent of override of management controls. A review is about to commence, but the External Auditor has raised concerns about the scope of the review with the Chief Executive and Section 151 Officer and will be putting those concerns into writing.
c) The Value for Money report will be presented to the Committee at its meeting in February 2023. It is anticipated that the report will be adverse for 2019/20 with significant weaknesses in 2020/21. The weaknesses will not be a surprise for the Council and relate to the issues identified by the Ofsted inspection of children’s services, procurement arrangements, financial management reporting arrangements, HRA unlawful payments and general financial capacity within the Council and the impact of this on driving forward improvement.
d) It is also anticipated that the findings and recommendations from the review of selective licensing, which came about as a result of a matter being raised by a member of the public, will be available in February.
During subsequent discussion the following points were made:
e) Progress has been made in relation to the last few months of the operation of Robin Hood Energy but issues have not yet been resolved to the External Auditor’s satisfaction. However, there is a fair degree of confidence that the issue won’t result in accounts being qualified. Over 50% of the necessary information is now available and that will be sufficient for the group accounts.
f) The third party review of the management override of controls will make use of work that has already been carried out in relation to this issue to avoid duplication. The review will focus on new areas that haven’t been looked at yet such as ring-fenced grants that the Council receives. The External Auditor anticipates that other examples where controls did not work will be identified through this process. EY was appointed to carry out the review ten days prior and is now mobilised and collecting data. It is anticipated that the review will take approximately ten weeks and conclude in mid-February 2023.
g) The External Auditor was happy with the scope for the review of management override of controls that went out to tender, but has significant concerns about the approach proposed by EY. The approach seems to be focused on controls assurance rather than investigatory and therefore doesn’t fully fulfil the scope. There have been lots of conversations about this but agreement has not yet been reached, and therefore the External Auditor will be putting his concern in writing to the Chief Executive within the next week. A swift response will be expected.
h) The External Auditor does not have concerns about the capability of management in post but there are issues with capacity. All local authorities are facing recruitment problems but it feels particularly acute in Nottingham and, given the challenges that the Council is facing, capacity is a major risk. The External Auditor is fine with the direction of travel for organisational development but less confident about the Council’s ability to fill posts given challenging market conditions.
i) In relation to the Value for Money report, the External Auditor doesn’t believe that the Council has been able to demonstrate that it has achieved best value through procurement. The level of exemptions from Contract Procedure Rules indicate poor practice. There have been cases when exemption from Contract Procedure Rules was not justified and also permitted retrospectively. Lots of work has gone into developing a new operating model but it now needs to be put into place. There are also concerns about the very low thresholds for decision making by officers which adds an additional layer of bureaucracy, slowing decision making down and impacting on best value.
j) The issues highlighted in this verbal update are all reflected on the Council’s risk register and there are no concerns that the Council is not aware of issues that need to be addressed.
Noting the concerns raised about organisational capacity and challenges with recruitment, the Committee discussed the need for urgent assurance on this. In April the Committee had requested that the Director of HR submit a report on the challenges in respect of staff resourcing but this has not been forthcoming. The Committee requested that an item come to the next meeting setting out how the Council is responding to recruitment challenges and managing associated risks. Noting particular concern about finance and IT capacity, the Committee requested that this report include details of permanent vacancies in finance and IT teams and whether these vacancies have been filled by interim appointments or whether they remain unfilled.
At the request of the Committee, Andrew Smith agreed to circulate a copy of the Value for Money report to Committee members in advance of the February meeting.
At the request of the Committee, Andrew Smith agreed to provide the Chair of the Audit Committee with a copy of his letter to the Chief Executive about concerns over the approach to the review of management override of controls.
Resolved to:
(1) request that the External Auditor circulate a copy of the Value for Money report to Committee members in advance of the February meeting;
(2) request that the External Auditor share a copy of the letter sent to the Chief Executive detailing concerns about the approach to the review of management override of controls with the Chair of the Audit Committee; and
(3) request that a report on how the Council is responding to recruitment challenges and managing risks associated with this, with detail of how many posts in Finance and IT teams are a) filled with interim staff and b) unfilled is brought to the next meeting of the Committee.