Agenda item

Report of external auditor, Bishop Fleming

TO FOLLOW

Nathan Coughlin of Bishop Fleming, appointed auditor for 2023-24, introduced the report as published. He highlighted the following points:

·         The Value for Money report had not been exempt as part of the backstop in the previous year and had been submitted to the Committee by Grant Thornton. Bishop Fleming have reviewed their findings and carried out their own assessment.

·         They considered three key areas in their assessment – financial sustainability, governance, and improving economy, efficiency and effectiveness. A baseline review has been carried out of core processes and arrangements in place for each area which had not revealed any significant weaknesses. Future years will dive into some areas in greater detail.

·         A risk based approach to the audit has been taken with a risk assessment carried out at the start, which considered points raised by previous auditors, minutes and regulators’ requirements.

·         Whilst no significant weaknesses were identified, a number of recommendations have been made. Three were previously recommended by Grant Thornton and have been partially implemented. Three new recommendations have been made by Bishop Fleming, two of which, risk management and procurement, were already in the process of being revised and improvements made. The final recommendation relates to the need for continued careful monitoring and increased scrutiny of the level of debt in the organisation due to the risk and level of projects that are ongoing.

The following responses were received to Members’ questions:

·         The slight concerns around borrowing highlighted in the report relate to difficulty in getting clarity on short-term borrowing against the Housing Revenue Account (HRA). Significant work is being carried out on the longer HRA plan which will ensure the council is not borrowing against the replacement of components. Additional concern was raised around the level of short-term borrowing with interest rates higher than they were both in the short and longer term. A number of councils have reported higher budget outturns than projected due to interest rates remaining higher than expected but this also leads to significant borrowing being more expensive, especially with short-term fixed rates.

·         Officers are comfortable with the council’s net budget requirements of just over £20m approved by the Council as gross turnover is far higher than this due to the HRA. There is around £200m in borrowing which is split relatively equally between the General Fund and HRA. The borrowing against the HRA is considered reasonable when divided across the properties owned by the council. They recognise that the concerns raised by Bishop Fleming reflect challenges due to wider factors including high interest rates, the war on Ukraine and cost inflation (particularly within the building trade). This has not been adequately offset through the rent increase, due to the calculation taking place in September, when the Consumer Price Index (CPI) was lower than has been seen since. Significant scenario testing will be carried out on the HRA and Members may need to make difficult decisions on how to balance the three big financing demands on the HRA – new build, achieving decent homes and decarbonisation. Consideration will be given to the disposal of high value assets within the HRA to ensure the council are able to deliver decent homes to tenants.

·         For the General Fund a calculated risk was taken in the purchase of the green fields in 2019. Once planning is hopefully secured there will be a significant uplift on the value of those land holdings. As the development comes forward lots will be sold which will recoup what was borrowed. There are also a number of significant assets in the process of being disposed, if these capital receipts are realised this will enable the reduction in short term borrowing.

·         Capital health indicators show a healthy debt to asset ratio as highlighted within the section 25 report. It is important to get the right balance between risk and reward.

·         The recommendation around the savings target raised by Grant Thornton has been left open. When this is reviewed in the future it will not look at whether the target has been met, but will consider how the savings are being monitored and tracked and that the actions needed to achieve the savings are being taken. It is hoped this recommendation will be closed in the next year.

·         The approved partnership strategy covers arrangements with groups where the council have commissioned services, such as the Cheltenham Trust, Ubico, One Legal, Publica and SWAP. These organisations provide an annual assurance statement which is collated by the Monitoring Officer as part of the council’s annual governance statement. Grant Thornton recommended that a clear assessment was needed of who the partners are, what services are being delivered, what the governance arrangements are, how the council oversee these arrangements and how it is ensured the partnership is delivering. This recommendation also more broadly considers what should be in place for procurement outside of commissioning arrangements. Discussions are taking place with the Monitoring Officer to consider whether a register would best meet this recommendation or whether existing processes, such as the assurance statement, does this in a different form whilst also covering non-financial arrangements including health and safety, reporting and KPI data. Under the procurement regulations there is also a requirement to record commissioning arrangements within the contract register including dates that the existing arrangements expire to ensure the council is prepared to go to the market again.

Members’ discussion raised the following points:

·         The balance sheet shows a strong position but it is important to have processes in place to keep a close eye on the headroom as the short-term debt rolls over. The decision to borrow to invest against assets was felt to have been the right approach.

·         Members are comfortable from the management comment that the recommendations are being progressed but it was agreed that an internal update on the progress of the external audit recommendations should be provided to the committee in 6 months’ time.

·         It was suggested that internal audit could carry out a review of procurement processes to increase efficiency and economic effectiveness, and consider establishing KPIs and targets for defining value in light of both price and quality.

There was no vote on this item.