Agenda item

Report of the External Auditors, Grant Thornton

Andrew Smith, the Key Audit Partner from Grant Thornton, presented the Interim Value for Money (VFM) Report of the external auditors. The following points were highlighted:

(a)  the report follows on from the verbal report delivered by Grant Thornton to the Committee in November 2022;

(b)  in the External Audit Update delivered to Audit Committee in February 2022, three areas of significant weakness were identified:

  i.  Financial sustainability;

  ii.  Companies governance arrangements;

  iii.  Delays to annual accounts production and finalisation;

(c)  the report has identified progress in all three areas, though they do remain significant weaknesses for the Authority;

(d)  the latest report has identified a further five weaknesses:

  i.  failure to secure improvements in Children’s Services;

  ii.  significant inconsistencies between budget and the final outturn in 2021-22;

  iii.  unlawful transfer from the Housing Revenue Account to the General Fund;

  iv.  lack of management capacity due to recruitment and retention issues, particularly in corporate and key services;

  v.  Council not able to demonstrate Best Value through procurement, including non-compliance and identified retrospective approvals.

Ross Brown, Corporate Director of Finance and Resources, responded to say that the Council recognises the seriousness of the weaknesses that have been identified by Grant Thornton. The report itself notes that the weaknesses identified are being addressed already through the Council’s Recovery and Improvement Plan. All recommendations have been accepted and will be implemented.

In the discussion which followed, and in response to questions by the Committee, the following points were made:

(e)  the overall level of gross debt is high when compared to other core cities, as is the cost of servicing that debt. However, it is important to distinguish between different kinds of debt, and prioritise the reduction of net debt rather than gross debt, and complete cost-benefit analyses regarding the impact on revenue from reductions in certain kinds of debt;

(f)  debt needs to be understood in the context of the specific assets that it supports. For example, the debt connected to the tram network is a significant conscious choice with debt payments covered through the PFI system and through the Workplace Parking Levy, which skews comparisons with other core cities where the tram network sits with the transport authority. There is also debt connected to the City’s ownership of its council housing, and to the commercial portfolio held by the City;

(g)  it is crucial to find a manner of explaining the nature and composition of the Council’s debt in a way that better helps citizens to understand how their city is governed. Not all debt is bad, much can be seen as markers of investment in the City, an expression of the ambitions that Members have for the City;

(h)  the Council is currently disposing of a lot of assets, and Members sought assurances that assessments were being completed in each case to prove the business case for each sale, especially where disposal means the loss of an income stream. Members commented that assurance on this could potentially be included on the future work programme for the Committee;

(i)  Councillor Williams confirmed that it is useful to have an external audit provide a summary for the Committee, but it is important to note that the issues raised in the report are not entirely new to the Council, often they are issues that the Council is aware of and has been working to implement recommendations for some time;

(j)  Andrew Smith confirmed that the new issues in the report are ones the external auditors have identified, but Council officers have independently identified the same issues. Following the HRA concerns the audit risk assessment had been revised and extended work was required which has identified some further issues.  Some of these issues are quite technical;

(k)  Andrew Smith updated the Committee on the issues related to valuations and journal testing that remain to be concluded as part of the 2019/20 accounts audit, and Ross Brown confirmed that this was an objective summary of the issues.  The Chair suggested that the completion of the 2019/20 and later accounts should be a standing item for the Audit Committee going forward.

A Committee member indicated that they wish to raise a matter relating to information that, in accordance with Section 100A(4) of the Local Government Act 1972, would be exempt from publication under Paragraph 1 Part 1 of Schedule 12A of the Act.  The Chair agreed to ask the Committee to consider excluding the public from the meeting for consideration of this matter under Item 13.

Resolved to note the interim Value for Money report of the external auditors.