Agenda and minutes

There were no declarations of interest.

The minutes of the meeting held on 28 June 2023 were confirmed as correct.

The Committee received and noted the Monitoring Officer’s complaints update report.

The Section 151 Officer (S151) updated the Committee on the position relating to progress with the external audit of the Council’s Accounts for 2019/20, the subsidiaries’ 2022/23 Accounts together with the latest information regarding the 2022/23 Council’s Accounts.

BDO had received all the necessary information by the end of July 2023 to allow them to complete their fieldwork for the 2019/20 accounts within the first week of their renewed audit visit (w/c 4 September 2023) which included responses to outstanding PPE queries and detailed working papers to address the national issue of Infrastructure Assets. Unfortunately, the audit did not resume on that date due to BDO prioritising its NHS audit overruns to those of the Council. Following a Teams meeting with BDO representatives there were no finalised plans agreed at that time as to when the audit of the 2019/20 Accounts would resume. Accordingly, BDO intended to address the matter in their update report (see minute 12 below).

Turning to the subsidiaries it was noted that they were required to have their accounts signed off and filed with Companies House by 31 December 2023. Assuming this deadline was met officers were intending to report to Committee on the final and audited outturn for each subsidiary early in the New Year.

Moving forward the draft Statement of Council Accounts 2022/23 had been completed with the Group Accounts to be completed as soon as the audits of the subsidiaries as reported above were concluded.

The S151 Officer reported that the DLUHC were working with the National Audit Organisation (NAO) to propose a workable solution to help reduce the backlog of outstanding audits across the country up until 2022/23 and to enable auditors to move onto auditing the most up to date financial information. How that will work in practice had yet to be confirmed by Government.  The S151 Officer would like the 2019/20 accounts to be signed off before the implementation of the backstop solution as the audit of these accounts was substantially complete and therefore an audit opinion could be issued in the normal way. As the audit work had been completed the Council would be required to pay substantial fees and it would not represent value-for-money for the local taxpayer for this process to be set aside by a new arrangement which would result in a qualified audit opinion in some way.

In response to Members questions the S151 Officer explained the reasoning behind completing the 2022/23 Accounts ahead of the completion & findings from the auditing of the 2019/20 accounts. In short there were two stages of the accounts, the first being the publication of the draft accounts followed by the external audit. The problem lied with the auditing of accounts which had been subject to significant delays over the past years, and which had been well documented at this Committee. The 2022/23 accounts had been ready to publish for some time, but a decision was taken not to publish them as it was not known whether the  ...  view the full minutes text for item 11.

The BDO representative updated the Committee on the status of the 2019/20 audit of the Council’s Accounts and proposals regarding the delivery of the audits of the Statement of Accounts for the 2020/21, 2021/22 and 2022/23 financial years.

By way of background the BDO representative recalled previous progress reports brought before the Committee since March 2022 in respect of the various stages of the 2019/20 audit. Although the Council published its draft Accounts for 20219/20 in August 2020, these could not be progressed by BDO as there were a significant number of outstanding issues as detailed in the report as well as the absence of complete and accurate Group Accounts and supporting working papers for audit purposes. Alongside these issues there were resourcing challenges for BDO (unplanned long-term sickness and staff resignations) which had contributed to the delay in progressing the audit, and which had previously been reported to Members as well as discussed separately with the Chair, the Independent Member and the then Section 151 Officer and Chief Accounting Officer (CAO). On a positive note, a new Audit Manager had been appointed who would be assigned the Council’s audits. 

In October 2022 BDO reported that the combination of the above factors had caused delays in progressing the audit over that summer, in addition to which they highlighted a technical matter that had been identified that affected nationally all local authorities with material infrastructure assets on the balance sheet, of which LBBD was one. This matter required engagement of audit suppliers, NAO, CIPFA, local authorities and the Financial Reporting Advisory Board to determine an accounting solution for local authorities to implement.

BDO’s revised timeline for completing the audit was set as March 2023. However, as CIPFA did not announce the details of the infrastructure accounting solution until January this year, and as this required additional work that would materially affect the audit, that deadline could not be achieved. BDO provided an update report to the last meeting in June which confirmed that whilst the audit was progressing several key matters were still outstanding as detailed in the report as presented. 

On the basis that the Council’s draft infrastructure assets working papers were received before September (duly received in July) the update report proposed that that the audit would re-commence in September, be finalised in October, reported to management in November with final audit results presented to the Committee in January 2024. 

Since the last meeting BDO had met with officers to discuss the working papers, their audit approach and experiences from work done in other local authorities in this area. Additional delays in completing other NHS audits had reduced the capacity of BDO to oversee the recommencement of the Council audit in September. A subsequent meeting with the current S151 Officer was held to discuss the situation and the position was that although it was not possible to confirm the full picture of the rescheduled audit programme, the BDO representative was able to confirm that the infrastructure assets audit had  ...  view the full minutes text for item 12.

The BDO representative reported that their Audit 2018/19 completion report presented to this Committee in September 2020 highlighted that the quality of the draft accounts and documentation presented for audit had been poor, particularly in respect of group consolidation which was complex and had been completed by the Council for the first time that year. Subsequently the then Finance Director and Section 151 Officer had presented a report to this Committee in May 2021 on a joint ‘lessons learned’ review to understand why the 2018/19 audit had been significantly delayed.

As a consequence of this, further audit work was required which resulted in additional audit fee implications for the Council . Following the completion of the audit, the matter was discussed with the former Section 151 Officer who agreed the imposition of an additional fee in July 2023 of £301,990, over and above the scale fee of £127,801, which had been paid, as set by Public Sector Audit Appointments Ltd (PSAA)

It was noted that PSAA were contractually responsible for appointing external auditors to local authorities, and under the terms of those appointments they set the scale of fees and additionally required that proposals to vary set scale fees were submitted to them for approval  for independent assessment as part of due diligence. As part of that process the additional fees were required to be initially discussed at a granular level with the Section 151 Officer prior to being presented to Members.

Appendix 1 to the covering report summarised the breakdown of the additional fee made up of £262,313, representing the substantial additional scope of audit procedures and increase in associated managers and partners time, together with the sum of £39,677 representing the audit work connected with the group accounts, which as reported had not been reflected in the original scale fee. BDO confirmed that until the additional fee was approved by PSAA an invoice would not be raised.

Opening up to discussion a number of questions/points of clarification were sought. Firstly, BDO clarified that whilst there had been detailed conversations with officers over a long period about the additional work undertaken on the audit, and that rather than hold up the completion of the audit, it was recognised that it had not been possible at that stage to quantify the further costs, other than for both BDO and Council officers to accept that additional fees would be incurred, something that had been flagged up in previous reports to Members.

The Chair emphasised the importance of accountability and transparency regarding fees. Consequently, whilst acknowledging the point made about the fees being independently assessed and recognising that element relating to the group accounts was understandable, given they had not previously arisen in this Council, she was concerned that the report did not provide sufficient information/details for Members to justify the remaining element of the additional fee, namely the £262,313.

In response the BDO representative stated that in additional to the points made in the Executive summary as to the key issues  ...  view the full minutes text for item 13.

The Head of Assurance (HoA) reported that in accordance with the Public Sector Internal Audit Standard 1312, each audit service was required to undergo an external assessment at least once every five years by a qualified independent assessor.

Consequently, the London Borough of Hackney’s Corporate Head of Audit, Anti-Fraud and Risk Management undertook the assessment which in an appended report concluded that the Council’s Internal audit service ‘generally conforms’ to the Standards, the top of a three-point scale, being the highest grading achievable.

The report detailed the one (of 144) area of partial conformance and made seven low priority recommendations for remedial action as detailed, and which the HoA accepted.

The HoA went through the summary of the assessment in Appendix A and the 7-point action plan detailed in Appendix B. The Chair highlighted as a point of information that it would be helpful for Members when reviewing progress at future meetings, if the HoA included prospective dates/ timelines for addressing the independent assessor’s recommendations set out in the action plan. 

The Committee also sought and received an explanation as to the reasons for the one partial conformance which related to internal auditors declaring interests in accordance with organisational requirements. Additionally, the HoA elaborated on finding 3 of the action plan concerning the lack of formal records of staff training. He confirmed that this concerned recording external training rather than organisation training which was fully documented.

The Committee NOTED the report.

The Head of Assurance (HoA) updated the Committee. The Council took a strong stance against fraud and, as part of its strategy, all Counter Fraud policies were reviewed annually to take account of any change in working systems within the Council as well as legislation. All changes made had been subject to consultation with Legal, HR, staff networks and Trade Unions

The papers in the agenda mistakenly omitted the tracked changes which would have enabled the Committee to see where amendments had been made.

In order not to delay the publication of the policies and strategy on the Council Intranet and so as to allow them to be promoted to and, where applicable, applied by the Council’s partners such as council owned companies, contractors and schools,

The Committee APPROVED the changes as set out in the appendices to the report, subject to receiving and reviewing/commenting on track changed versions outside of the meeting. 

The Committee noted the work programme.