Agenda item
Recommendations from the Audit, Standards and Governance Committee meeting held on 9th November 2022
Minutes:
Section 24 Report
The Portfolio Holder for Finance and Governance presented the Recommendations from the Audit, Standards and Governance Committee as a result of their consideration of the Section 24 Notice and External Auditor’s Interim Annual Reports at the meeting held on 9th November 2022.
During consideration of this item, reference was made to the financial issues that had led to the non-delivery of the Statement of Accounts for 2020/21. In addition to this, the delivery of in-year monitoring for 2021/22 and Government Returns were also considered.
Council was informed that detailed updates had been provided to Members at a number of Committee meetings during 2022. It was clarified that during these updates, specific issues encountered during the implementation of the new Enterprise Resource Planning (ERP) system in February 2021 during Covid-19 had been highlighted. Furthermore, it was reported that the issues that had impacted on staffing levels and staff retention had also been raised.
Members were advised that at the time of issuing of the Section 24 Notice Report, the Council had still not completed the 2020/21 Statement of Accounts and therefore the external auditors had concluded it was appropriate for them to use their powers to make written recommendations under Section 24 of the Local Audit and Accountability Act 2014. The key reason for the Statutory Recommendation being the non-delivery of the Statutory Accounts for 2020/21.
Council was informed that under Schedule 7 of the Local Audit and Accountability Act 2014, the Council must consider the Section 24 Statutory Recommendation at a meeting held before the end of the period of one month, beginning with the day on which it was sent to the Council. In this instance, it was clarified that this was taking place 14 days after the issuing of the report. Council were being asked to decide whether the recommendations should be accepted and what, if any, action should be taken in response to these recommendations. It was reported that the external auditors had noted in their Interim Annual Auditor’s Report 2020/21, also due to be considered at this meeting, that progress in respect of the Statutory Recommendation had already been made.
During consideration of this item, reference was made to the Council’s disappointment in having received the Section 24 Recommendation, particularly in light of the work that had already been undertaken. However, it was accepted that the Council must provide the external auditors with accounts for 2020/21 that they were satisfied with.
Council was informed that the draft Statement of Accounts for 2020/21 were currently in the process of final validation by the Finance Team. This would ensure compliance across all legislative requirements. Once the validation had been completed, the draft accounts would be considered at the additional Audit, Standards and Governance Committee meeting due to take place on Wednesday 14th December 2022. Once this had taken place, the external auditors would be able to commence their work on the Statement of Accounts 2020/21. Clarification was provided to Members that following the completion of the 2020/21 accounts, the Finance Team would move straight on to the delivery of the 2021/22 accounts.
Council was advised that during a detailed update on the Section 24 Notice report at the Audit, Standards and Governance Committee meeting held on 9th November 2022, Officers had reported that, following substantial testing, the issues arising in the Cash Receipting system had been rectified. As a result, the Cash Receipting module had been moved into the live environment over the weekend of 5th and 6th of November 2022. Also confirmed at this meeting, was that the frequency of Audit, Standards and Governance Committee meetings would increase to bi-monthly. This would allow Members to review progress on the Statutory Recommendation to ensure all items set out in the recommendation and associated management actions were implemented. Following the detailed update provided by Officers at this meeting, the Audit, Standards and Governance Committee recommended that the Section 24 Statutory Recommendation be accepted, and that Council endorse the actions included in the Management Response to rectify the position. This recommendation was endorsed by Cabinet at its meeting held on 23rd November during consideration of the Section 24 Notice Report.
The recommendations from the Audit, Standards and Governance Committee meeting held on 9th November 2022 in respect of the Section 24 Notice report were proposed by Councillor G.N Denaro and seconded by Councillor P. Whittaker.
Following the presentation of the report, Councillor L.C.R Mallet addressed Council in his role as Chairman of the Audit, Standards and Governance Committee. In doing so, he announced that he wished to resign as Chairman of the Committee and outlined his reasons for doing so. He stated that the information contained within the Section 24 Notice report was not new information and had been raised several times previously by the Audit, Standards and Governance Committee and the external auditors. Reference was made to the implementation of the new ERP system and the significant failures that had been experienced in this area, which had resulted in the loss of staff, across all levels of the Finance Team.
Concerns were also raised regarding Risk Management at Bromsgrove District Council and the lack of risk reporting that had taken place in previous municipal years resulting in a ‘No Assurance’ audit conclusion by Internal Audit. Frustration was expressed by the response of the Corporate Management Team (CMT) in order to address the issues highlighted within this Internal Audit report. It was requested that Officers contact the Council’s insurance provider to check the validity of its insurance policy in light of the ‘No Assurance’ audit conclusion received from Internal Audit in relation to Risk Management.
In terms of financial issues and the transparency of the Council’s Budget position and Risk Management, it was queried when the issues had been highlighted by Officers, particularly in light of the lack of financial monitoring and performance monitoring. In addition to these issues, the Council’s Savings Plan was highlighted as a further area of concern.
All Members were then invited to comment on the report and in doing so it was noted that work needed to be undertaken in order to fully understand how the Council had arrived at the Section 24 Notice. With this in mind, Councillor S. Colella proposed an additional recommendation to the one contained within the report. The recommendation read as follows:
‘that the Audit, Standards and Governance Committee carry out a root and branch investigation on how the Council arrived at the Section 24 Notice.’
In proposing the additional recommendation, Councillor Colella requested that, if agreed, it be included as an urgent item of business at the Audit, Standards and Governance Committee meeting due to take place on 14th December 2022. This additional recommendation was seconded by Councillor S. Baxter.
Following this recommendation, Councillor Mallett stated that he wished to propose an additional action to the recommendation included in the report. This action read as follows:
‘that Bromsgrove District Council refers itself into Special Measures and to the Ombudsman.’
In proposing this action, Councillor Mallett once again raised his concerns in the areas of ‘Limited’ and ‘No Assurance’ audits that had taken place in previous years, the Savings Plan, the amount of the Council’s reserves and his lack of confidence in the current leadership of the Council.
Following the proposals outlined above, it was raised by some Members that there had been an opportunity for all Members of the Council to attend the Audit, Standards and Governance Committee meeting that took place on 9th November 2022. Members were advised that some of the issues raised at the Council meeting had been addressed during the robust debate by the Committee. It was confirmed that the Audit, Standards and Governance Committee took these issues very seriously and it was disappointing that more Members had not been present at the meeting on 9th November 2022. Although it was noted that some Members did have a number of other commitments separate from their Council duties which made it difficult to always attend additional meetings.
In response to some of the points outlined above, Councillor Mallett stated that he had not been notified of the date of the additional Audit, Standards and Governance Committee meeting that took place in November 2022. In response, the Monitoring Officer explained that she had been informed that both the Interim Section 151 Officer and Democratic Services Officers had made attempts to contact Councillor Mallett regarding the date of the additional Audit, Standards and Governance Committee meeting, however all attempts had been unsuccessful. Further to this response, Councillor Mallett provided clarification that he was on leave at the time contact was attempted. He highlighted that he had contacted Officers on his return regarding his unavailability for the date of the next meeting, due to be held on 14th December 2022. However, at this time it had been clarified that due to Officer availability, this was the only suitable date for the meeting to go ahead. It was agreed that discussion of this matter would be continued outside of the meeting in order to resolve any issues in the future.
During consideration of this item, it was reiterated that the Council had experienced a ‘perfect storm’ in respect of the issues it had encountered. In addition to the issues during the implementation of the ERP system, Members were advised that Bromsgrove District Council was not unique in its experiences of staff retention within its Finance Team and that this had been seen throughout the Finance sector at a local and national level. Furthermore, the additional pressures of work undertaken in the administering of grants during Covid-19 had impacted on the delivery of the Statement of Accounts 2020/21.
In returning to the additional recommendation proposed by Councillor Colella earlier in the meeting, it was suggested that it was hugely important, given the findings of the external auditors, that a detailed and transparent investigation be undertaken by the Audit, Standards and Governance Committee. This would ensure that the Council understood the issues that had been identified and had the correct measures in place to rectify them going forward. It was confirmed that questions had been previously asked regarding the implementation of the ERP system at the Finance and Budget Scrutiny Working Group, however the responses had not always been clear.
Council was reminded of the wording of the additional recommendation proposed by Councillor Colella as detailed earlier in the meeting. On being put to the vote this recommendation was carried.
Following this vote, Members returned to the action proposed by Councillor Mallett earlier in the meeting and were reminded of the proposed action as detailed in the preamble above. Councillor Mallett reported to Members that he wished to move this as an amendment to the recommendation as detailed in the Section 24 Report and put on notice that should the amendment not be carried, he would deem it necessary to call an emergency meeting of the Council and call for the recruitment of an Independent Person. This amendment was seconded by Councillor P. McDonald.
At this point in the meeting, an adjournment was requested.
[The adjournment took place between 7.30pm and 8.00pm].
On reconvening the meeting, the Interim Section 151 Officer stated the following for Members’ attention:
‘Following discussion, the Council, through the Leader, would commission a Corporate Peer Review by the Local Government Association (LGA) to look into Corporate Governance linked to the Section 24 Notice report and the draft External Audit Report for 2020/21. The Review would then be reported back to the Chief Executive and the Leader of the Council, who in turn would discuss the outcomes with the other Group Leaders’.
It was clarified by Councillor Mallett that, as a result of the statement made by the Interim Section 151 Officer, his earlier action and amendment to the recommendation had been withdrawn.
On being put to the vote the statement presented by the Interim Section 151 Officer was carried.
RESOLVED that
1) the Section 24 Statutory Recommendation be accepted, and that Council review the recommendation, endorse the actions included in the management responses which form the rectification process required as per legislation and;
2) the Council, through the Leader, commission a Corporate Peer Review by the Local Government Association (LGA) to look into Corporate Governance linked to the Section 24 Notice report and the draft External Audit Report for 2020/21. The review would then be reported back to the Chief Executive and the Leader of the Council, who in turn would discuss the outcomes with other Group Leaders.
3) the Audit, Standards and Governance Committee carry out a root and branch investigation on how the Council arrived at the Section 24 Notice.
External Auditor’s Interim Annual Report
Following the robust debate regarding the Section 24 Notice recommendation from the Audit, Standards and Governance Committee meeting held on 9th November 2022, the second recommendation regarding the External Auditor’s Interim Annual Report was considered by Members. In doing so, the following was highlighted:
· The report covered arrangements that the Council had in place up to the 31st March 2021.
· The External Auditors, Grant Thornton, began their work in February 2022 and were pleased to see that officers had responded positively to the ongoing discussions and had begun to address many of the key concerns. The External Auditors noted that the changes made would still need to be embedded.
· The key recommendations contained within the report were highlighted in the Finance Improvement Recovery Plan report considered by Cabinet on 12th October 2022.
· There were five key recommendations set out in the External Auditor’s Interim Annual Report. These recommendations were:
1. The Council needed to ensure that the Medium Term Financial Plan presented to Members was completely transparent regarding the financial challenge and that any savings schemes included were fully established and approved by Members in advance.
2. The Council needed to improve management of key projects, such as the financial ledger implementation, to ensure that expected benefits were realised. As part of this, the Council needed to undertake a comprehensive review of the financial ledger implementation and ensure lessons were learned for future key projects.
3. The Council review and implement effective governance arrangements in respect of performance monitoring to allow Members to make informed decisions. In order to achieve this the Council should reinstate public reporting on performance, linking this to the Council Plan and the related strategic objectives, allowing Members to scrutinise performance. This should be done at least twice per year.
4. The Council should review and implement effective governance arrangements in respect of risk monitoring to allow Members to make informed decisions. In order to achieve this the Council should make Risk Management reporting a standing item on the Audit, Governance and Standards Committee agenda, with Members considering the Corporate Risk Register and Risk Management arrangements in an appropriate forum.
5. The Council should ensure timely and relevant financial monitoring reporting be undertaken and presented to the appropriate public forum.
The Council’s view in respect of these five Key Recommendations was that management actions were in place to mitigate all of them. These mitigations included:
· A fully staffed Finance Team in order to ensure correct capacity for delivery of the Key Recommendations.
· Delivery of the 2023/24 Medium Term Financial Plan in two Tranches.
· Holding a monthly Cross Council Assurance Review meeting in order to assess priorities and the delivery of other cross cutting meetings.
· Integrating Performance and Financial monitoring in one report. It was reported that the first of these reports (Q1) was considered by Cabinet on 6th September 2022. The second report (Q2) was considered by Cabinet on 23rd November 2022.
· Risk Monitoring Governance had been updated and reporting was now considered by the Audit, Standards and Governance Committee on a quarterly basis.
Grant Thornton had also commented on the Council’s arrangements to secure economy, efficiency, and effectiveness in its use of resources. The majority of these points were included in the 13 Improvement Recommendations. As with the Key Recommendations, it was the Council’s view that the process of integrating these recommendations into normal processing had already commenced as set out in the management responses contained within the External Auditor’s Interim Report.
The Council was informed that the Audit, Standards and Governance Committee would be reviewing implementation of both Key and Performance Recommendations going forward.
The recommendations from the Audit, Standards and Governance Committee meeting held on 9th November 2022 in respect of the External Auditor’s Interim Annual Report were proposed by Councillor G.N Denaro and seconded by Councillor K. May.
Prior to the vote, there was a query as to whether the recommendations could be split into two recommendations. However, it was confirmed that the Auditors were supportive of the responses provided by the management team and were unsure of the reason why the recommendation would need to be split.
As a result of the detailed consideration of the Recommendations from the Audit, Standards and Governance Committee meeting held on 9th November 2022 it was
RESOLVED 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
Supporting documents:
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