Agenda item - Interim Auditor's Annual Report 2020-21

Agenda item

Interim Auditor's Annual Report 2020-21

Minutes:

Mr J. Murray presented the Interim Auditor's Annual Report 2020-21 on behalf of Grant Thornton and in doing so the following was highlighted for Members attention:

 

·       This report was interim and would not be final until an audit opinion could be issued on the financial statements 2020/2021.

It was the first time that Committee Members had considered this report in this format. The National Audit Office, who set the code of practice that auditors followed, had updated the format of these types of reports in 2021, specifically highlighting Value for Money arrangements. This new code removed the necessity of provision of an audit opinion and required a commentary which resulted in a more lengthy report than had been considered by the Committee in previous years. Members were informed that the report highlighted 3 key areas, as follows:-.

 

1.     Financial Sustainability

2.     Governance

3.     Improving economy, efficiency and effectiveness

 

·       The report covered arrangements that were in place in the period up to 31st March 2021. Members were reminded that this was a backward look at the 3 key areas, as highlighted above, and that some of the recommendations contained within the report had been discussed earlier in the meeting and actions had already been taken against these recommendations. There were 5 key recommendations and 13 improvement recommendations contained within the report. The 5 key recommendations were in respect of the following:

 

1.     The Medium Term Financial Plan – this recommendation covered the pressures that the Council was currently facing. It was noted that at the previous Audit, Standards and Governance Committee meeting the Interim Section 151 Officer has provided Members with a detailed update of the Councils’ financial pressures as it moved into the next budget round. In addition to this Mr. Murray reiterated that with an uncertain economic climate, the effects of Covid-19 and the cost of living crisis it was a challenging environment. It was confirmed that Grant Thornton was content that Officers had a plan going forward and had considered the significant challenges that the Council faced.

2.     Improvement of management of key projects – this recommendation was discussed as part of the previous item in respect of the implementation of the ERP system.

3.     Performance Reporting and Monitoring – This recommendation dealt with the reinstatement of Performance Monitoring. Members were informed that there had been no formal Performance reporting to Members throughout the 2020/2021 financial year. It was noted that Members had been able to access the Performance Dashboard but that the information included was not publicly available. Mr Jackson stated that formal performance monitoring had already begun and that theQ1 Performance and Finance report was considered by Cabinet at its meeting held in October. This formal monitoring would continue on a quarterly basis.

4.     Risk Management and Risk Monitoring – This recommendation outlined the need for formal risk management reporting through the Audit, Standards and Governance Committee. It was noted that this had already commenced, and the definition of a Corporate Risk had been agreed by Members and this reporting was now considered at each meeting of the Committee.

5.     Financial Monitoring – this recommendation was concerned with the lack of formal Financial Monitoring. It was stated that there had been no formal Financial reporting to Members throughout the 2020/2021 financial year. However, it was confirmed that there had been financial monitoring up to the implementation of the new ledger. As noted earlier in the meeting, the impact due to alack of staff within the Finance team had inevitably impacted in this area in the 2021/22 financial year and now staffing levels had increased this had been reinstated and was now being considered on a quarterly basis staring with the Month 11 2021/22 monitoring report in May 2022, which covered period 11 (February 2022). It was clarified that although the lack of financial monitoring had occurred following the implementation of the new financial system, the auditors had a duty under the code to report any significant weakness identified in a timely way, which was why this particular recommendation was included in the 2020/2021 report. It was reported that these recommendations would be followed up as part of the 2021/2022 Auditor’s Annual Report and work on that was expected to commence in January 2023.

 

Following presentation of the report the Interim Section 151 Officer reiterated the importance of having staffing levels to deliver the Finance Recovery Plan. In addition to this it was reported that it was crucial to deliver the Medium Term Financial Plan 2023/2024 in two tranches. In terms of assurance, Members were informed there hadbeen a number of internal assurance boards, one looking across the back office processes and another which included the 4th Tier managers who would be expected to review projects to ensure the correct people were included at that correct time. Risk Management had been considered by the Committee at the previous two meetings and this would continue going forward in order to embed these processes over the next year.

 

The Leader of the Council stated that everyone would work hard to fulfil the recommendations as outlined within the report. Additionally, she expressed her thanks to the senior Officers at the Council and all of the Finance Team for addressing the issues in a constructive way. In addition to this, it was reiteratedthat it was important to keep staffing levels at the correct level. Some Members were keen to better understand the impact that this Section 24 Notice would have on future recruitment and when would the Section 24 Notice process be completed. Mr. Murray explained that the Audit, Standards and Governance Committee would be provided with updates at future meetings. It was suggested that one of the updates to be included on future Committee agendas be Section 24 Notice – Progress report. As mentioned earlier in the meeting all of the recommendations included within the report would be followed up as part of the 2021/2022 Auditor’s Annual Report.

 

Further discussion followedregarding the inclusion of the external stakeholders in the budget setting process going forward. It was explained by Mr Murray that it was good practice to include internal and external stakeholders, which included the public, in order to help understand priorities, areas of focus and investments in certain areas. It was reported by the Interim Section 151 Officer that this area had been picked up in a previous Peer Review and in order to fulfil this a feedback form had been included in the Tranche 1 budget documentation. Furthermore, in terms of the large amount of funding involved in the Levelling Up and UK Shared Prosperity Fund, a Project Board was initiated which would also help to meet this improvement recommendation in terms of public consultation. It was highlighted for Members’ attention that there had been approximately £457k of unallocated savings in the 2022/23 budget which had now been allocated through the 2022/23 financial and performance monitoring reports. Although Members found this reassuring there was a feeling that this saving had been a ‘quick win’ due to the success of the Worcestershire Pension fund;and had there been a more driven effort to access further savings, the Council could have potentially made more savings. The Chief Executive confirmed that the Corporate Management Team were driving extremely hard to increase the savings and a significant amount of the budget deficit had been covered. A considerable challenge that was still unknown was the large rise in inflation and associated pressures, which was an issue faced by all Local Authorities. It was hoped that there would be more clarity provided in this area once the Chancellor had provided his Autumn Statement on 17th November 2022. Members were informed that this was the most challenging landscape for budget setting, that the budget gap would not be deliverable within one year and that difficult decisions would inevitably have to be made.

 

Some Members expressed real concern at some of the recommendations contained within the report including budget holders’ responsibilities, workforce planning and a procurement strategy. It was reiterated by Members that these recommendations must be prioritised and mitigations and adequate communications to Members put in place. Officers provided reassurance that this was being taken very seriously and reiterated that there was already a Financial Recovery Plan in place and steps had already been taken to address this and improvements made in respect of some of the issues outlined within the report. Furthermore, an explanation was provided in respect of the budget holders’ responsibilities recommendation, and it was confirmed that the Corporate Management Team took these issues very seriously and that the Interim Section 151 Officer had rolled out a programme for 4th Tier Managers to better understand the role they played in the budget setting process.

 

It was raised by some Members how savings were identified and whether innovative methods had been employed for the future. In response to this, it was suggested that perhaps these kinds of ideas could be discussed at the Finance and Budget Working Group, and this could potentially be looked at in the future.

 

On being put to the vote it was

 

RECOMMENDED that

 

1.     the 5 Key Recommendations and 13 Improvement Recommendations within this report be agreed.

 

2.     Council agree that the Management Actions contained within this report will rectify these issues.

 

[Following consideration of this item, the meeting was adjourned for 5 minutes].

 

Supporting documents: