Agenda item

The Committee considered the External Audit Completion Report for the 2023/24 and 2024/25 financial years, presented by representatives from Ernst & Young. The External Auditors present outlined the purpose and scope of the report, the auditor’s statutory responsibilities, and outlined the audit findings and Value for Money considerations.

Members were advised that the report had been prepared within the context of national delays to local authority audits, as well as local challenges, including the auditors who had initially been appointed having been unable to take up the role resulting in late appointment of current external auditors as well as delays with completion of prior years’ accounts. It was noted that the Council’s previous auditor, Grant Thornton, had issued statutory recommendations, in October 2022 and November 2023, with respect to the flawed implementation of Council’s new financial system (ERP) and the subsequent failure of the Council to publish the 2020/21, 2021/22 and 2022/23 draft financial statements in accordance with statutory requirements.

The External Auditors reported that they had reviewed the actions taken by the Council in response to these statutory recommendations. The External Auditors were satisfied that further statutory recommendations were not currently required.

The External Auditors reported that they had completed the work required under the international auditing standards for the Council’s financial statements for both 2023/24 and 2024/25. The External Auditors intended to issue a disclaimer opinion on the Council’s financial statements for both of these years. This meant that no assurance could be provided on the accuracy of the financial statements. It was clarified that this position reflected in part the historic issues for those years rather than current financial management arrangements, although the Value for Money section of the report identified six risks of significant weaknesses which remained relevant to the Council.

In relation to Value for Money arrangements, Members were informed that the audit considered three key criteria: financial sustainability, informed decision-making, and the effectiveness and efficiency of resource use. The auditors clarified that they reported by exception where significant weaknesses were identified rather than providing an overall assurance conclusion.

The Committee’s attention was drawn to a number of significant weaknesses identified within the Value for Money part of the report. These included delays in publishing the draft financial statements for 2023/24, capacity and capability issues within the finance team linked to staff turnover and reliance on interim arrangements, and weaknesses arising from the Council’s management of VAT and accounting processes. It was also noted that the Council’s C3 regulatory judgement from the Regulator of Social Housing represented a significant weakness in governance and service delivery arrangements.

The auditors reported that, whilst some areas such as capital programme underspends and maintenance-related complaints within the Housing Service had been identified as risks, these had not been assessed as significant weaknesses, although recommendations for improvement had been made.

In response to the report by the External Auditor, the Director of Finance and Section 151 Officer explained that the Council accepted the findings of the report and was committed to addressing the identified issues. It was explained that the intention was to submit the Council’s draft 2025/26 Statement of Accounts for 2025/26 alongside the Annual Governance Statement (AGS) for that financial year. The AGS for 2025/26 would include a detailed action plan setting out management responses to each of the recommendations in respect of the significant weaknesses outlined in the Value for Money report and throughout the Audit Completion Report before Members.

Members welcomed the fact that the draft 2025/26 Statement of Accounts to the next Committee meeting in July, with the Council now being in a position of having cleared the backlog of uncompleted accounts for previous years. Progress was also noted in the quality of financial reporting to Members and in the resolution achieved in respect of the Council’s VAT position. However, Members expressed concern regarding the seriousness of some of the External Auditors findings, particularly those relating to financial sustainability, workforce capacity, and weaknesses in financial planning processes.

The Committee discussed the Council’s workforce strategy in detail. It was noted that, whilst a strategy had previously been agreed, further work was required to address outstanding actions, including succession planning, recruitment challenges, and the need to strengthen capacity in key areas such as treasury management and capital programme delivery. Officers confirmed that work was underway to review the structure of the finance team and develop a more sustainable staffing model for both immediate and longer-term needs.

Questions were asked around the potential for there to be a requirement for all public-facing Council staff to undertake DBS checks. Officers explained that this was part of a wider debate across the local government sector. Officers undertook to enquire about the current opinion in this area and would provide a response to Members.

Members also raised concerns regarding the Council’s financial planning arrangements. It was highlighted that more robust medium-term financial planning was required, particularly in relation to savings delivery, service-level budgeting, and managing inflationary and income pressures. Officers acknowledged these concerns and advised that future work would focus on developing a sustainable medium-term financial strategy and reducing reliance on vacancy-based savings.

The Committee considered issues relating to the capital programme and observed that there was a need to ensure that capital programme plans were realistic, deliverable, and supported by sufficient resources. It was acknowledged that improved monitoring and analysis of capital expenditure would be required moving forward.

In respect of governance arrangements, Members emphasised the importance of strengthening monitoring of action plans, particularly those associated with the Housing Improvement Plan and regulatory requirements. It was suggested that regular progress reports should be provided to the Committee to enable effective oversight, although it was noted that the Overview and Scrutiny Committee already received quarterly reports in this area.

The Committee also discussed risk management arrangements and noted that further work was required to improve the identification, monitoring, and reporting of corporate and departmental risks. Officers advised that a revised approach to risk management, including enhanced reporting mechanisms and closer working relationship between Officers and the appointed Member Risk Champion, would be developed.

In relation to whistleblowing, Members requested that a set of updated policies, including whistleblowing, anti-fraud, and corruption strategies, be brought forward for review by the Committee. It was agreed that regular reporting on whistleblowing activity should be introduced as part of regular reporting to the Committee.

There was discussion on the implications of the disclaimer opinion going forward. The External Auditors explained that rebuilding assurance in the Council’s financial statements would take a number of years, with disclaimer or qualified opinions likely to continue in the short term. However, Members would receive increasing levels of assurance through more detailed audit reporting on individual areas of the accounts, and continued audit procedures, including through Internal Audit opinions that were being undertaken. It was highlighted that last year the Council had received reasonable assurance on its internal audit opinion showing progress in governance arrangements. This would contribute to strengthening assurance before the Local Government Reorganisation (LGR) arrangements come into force in April 2028.

Members acknowledged the significant challenges faced by the Council in recent years and welcomed the progress that had been made. It was recognised that further significant work was required to return to audit assurance, in terms of returning to unqualified opinions for the Council’s financial statements, and to strengthen governance and ensure sustainable service delivery.

Following the discussion of the report, the Committee agreed the resolutions as per the report.

RESOLVED that

1)    The significance of consecutive years of disclaimed opinions be acknowledged, and the Completion Report attached at Appendix 1, be endorsed.

2)    The Committee request a detailed updated Recovery Plan be requested, including milestones and reporting arrangements, to address the recommendations raised within the Completion Report.

3)    The Committee continue to oversee arrangements for financial reporting, including regular monitoring of progress against improvement actions and key milestones.