The Engagement Lead for Grant Thornton presented the Interim Auditor’s Annual Report 2020-21 on behalf of Grant Thornton and in doing so highlighted the following for Members’ attention.
· This report was interim and would not be issued in final until an audit opinion could be issued on the 2020/21 financial statements.
· 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 on three key areas: financial sustainability, governance, and improving economy, efficiency and effectiveness. This resulted in a more lengthy report than had been considered by the Committee in previous years.
· 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 three 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 6 key recommendations, which highlighted the areas where significant weakness in arrangements had been identified, and 13 improvement recommendations contained within the report. The 6 key recommendations were in respect of the following:
1. The Medium Term Financial Plan – this recommendation outlined that the Council continued to be reliant on the use of general fund reserves and needed to take action through saving and income generation schemes to ensure financial sustainability in the longer term. This was pertinent given the uncertainty around level of central government support.
2. Provision of key reports and documents to Members – This recommendation noted that neither the Capital Strategy nor the Treasury Management Strategy were reported to the Executive Committee or the Council in 2020/21 financial year, which was a requirement under the various CIPFA Codes of Practice. It was highlighted by auditors, however, that these key documents had been presented to Members for the 2022/23 financial year.
3. Improved management of key projects – this recommendation was discussed as part of the previous item in respect of the implementation of the ERP system.
4. Effective governance arrangements in respect of performance 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. The auditors highlighted that finance and performance monitoring had been reinstated from September 2022 with the Q1 2022/23 Finance and Performance Monitoring Report presented to Members in September and the Q2 2022/23 Finance and Performance Monitoring Report due to be presented to the Executive Committee in November.
5. Risk Management and Risk Reporting – This recommendation outlined the need for formal risk management reporting through the Audit, Governance and Standards Committee. It was noted that this had already commenced, and the definition of a Corporate Risk had been agreed by Members. Risk management reporting was now considered at meetings of the Committee.
6. Timely and relevant financial monitoring reporting – 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 a lack of staff within the finance team had inevitably impacted this area in the 2021/22 financial year and with staffing levels now increased financial reporting had been reinstated and was being considered on a quarterly basis.
Following presentation of the report the Interim Director of Finance 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 had been a number of internal assurance boards, one looking across the back office processes and another which included the Fourth Tier managers who would be expected to review projects to ensure the correct people were included at that correct time. It was added that there was a role for Members in reviewing changes to projects and considering lessons learned. It was noted that a lessons learned report on the ERP system project would be presented to the Audit, Governance and Standards Committee in due course.
Members questioned whether the recommendations of the Local Government Association (LGA) Corporate Peer Challenge were being implemented by the Council and whether another peer review had been envisaged. Officers reiterated that the first LGA Corporate Peer Challenge was undertaken in Redditch in January 2018 with a follow-up visit in 2020 and responded that while the need to focus on responding to the Covid-19 pandemic had redirected focus from some of these peer challenge recommendations, the Council was focused on addressing the main recommendations in terms of the need for the Council to be clear about its priorities and ensuring that the Council’s resources were not overextended through taking on too many projects and initiatives. Officers stated that there was willingness to undertake another form of peer challenge once immediate priorities, such as producing the Accounts for 2020/21 and 2021/22, had been fully resolved.
Views were also provided on whether the Council would adopt the Chartered Institute of Public Finance and Accountancy (CIPFA) Governance Model and Officers noted that whilst it provided a sound overall framework for governance, the specific improvement recommendations contained within that model were not fully compatible with the corporate priorities of the Council. For example, it was underlined that a suite of performance measured needed to reflect what was relevant for Redditch.
The Interim Director of Finance confirmed that the projected use of reserves in the 2021/22 – 2024/25 Medium Term Financial Plan (MTFP) would see the general fund reserves decrease from £2 million for 2022/23 to £0.2 million by closing of 2024/25. In addition, the level of inflation seen, particularly utility inflation, which was now assumed at 200 per cent, presented a great challenge to delivering a balanced MTFP beyond 2024/25. It was reiterated that to deliver a balanced budget for the current MTFP ending 2025/26, significant savings would need to be identified in Tranche 2 of the budget process. This could necessitate making significant savings to service areas, and it was hoped the Chancellor Autumn Statement would provide some clarification on the level of support to the local government sector. It was added that in contrast to the general fund reserves the level of earmarked reserves remained stable for the last three years at around £7 million. The Council needed to consider whether it remained appropriate to set the level of earmarked reserves at this level.
Some Members commented that it was paramount the Council finances returned to a balanced position and commented that this would be difficult unless either some services were cut or innovative ideas to generate revenue were found. Other Members commented that the Council still needed to prioritise funds in such a way that projects that the public values were delivered whilst services for vulnerable members of the community were maintained.
On being put to the vote it was
1. The 6 Key Recommendations and 13 Improvement Recommendations within this report be agreed by the Council.
2. Council agree with the Management Actions contained within this report will rectify these issues.
3. Any other actions deemed necessary to rectify these issues be highlighted by the Council.