Agenda item

To consider the external auditor’s annual report 2020/21.  

46.1          Attention was drawn to Grant Thornton’s annual report 2020/21, circulated at Pages No. 19-53.  Members were asked to consider the report.

46.2          The representative from Grant Thornton explained that there had been some changes to the value for money assessment with the scope being much broader than in previous years.  There was no longer a requirement to give a specific formal opinion on the arrangements, instead the external auditor’s reported in more detail on the authority’s overall arrangements focusing on three areas: financial sustainability, governance and improving economy, efficiency and effectiveness.  The report before Members was a high-level summary of work undertaken as part of the broader scope review.  In terms of the outputs from that assessment, under the new Code of Audit Practice, there were three types of recommendations that could be issued: unsatisfactory opinion - where real concerns had been identified in the authority’s arrangements which required prompt action; key recommendations – if significant weakness was identified; or, improvement recommendations – an opportunity to look at ways the authority could improve and strengthen the arrangements already in place.  An overall summary in relation to Tewkesbury Borough Council’s value for money arrangements and key recommendations was set out at Pages No. 21-22 of the report.  In terms of financial sustainability, no significant weaknesses had been found but four improvement recommendations had been identified.  With regard to governance, two improvement recommendations had been identified along with one key recommendation in relation to delivery of the Internal Audit Work Programme for 2021.  This had been discussed at a number of previous meetings of the Committee and, clearly, there had been a need to resource the response to the pandemic; however, this had been looked at across all authorities and, whilst a lot had scaled back internal audit resources to redeploy staff and support the wider Council response, Tewkesbury Borough Council was the only one that Grant Thornton was aware of so far which had not delivered any of its Internal Audit programme.  There was a lot of evidence of reduced programmes of work but others had delivered at least the minimum core programme in order to give assurance on systems of internal control.  The representative from Grant Thornton advised that, in a crisis situation, it was more important than ever to have a programme in place to ensure checks and balances were maintained as this was when authorities were more prone and susceptible to those controls being overridden and challenged.  There was now an opportunity to think about how to maintain a minimum level of resource for internal audit going forward and, as the Council began to move out of the emergency response and into the recovery phase, it was evident from the additional papers in today’s Agenda that internal audit was focusing on the future in terms of reinstating resources in the service and reinstalling the normal programme.  With regard to improving economy, efficiency and effectiveness, it was noted there were no significant weaknesses but two improvement recommendations had been made. 

46.3          A Member drew attention to Page No. 41 of the report and indicated that she would like to see the environmental emergency and its associated risks included as the economy would be more efficient and effective if more thought went into the reduction of carbon etc.  She was surprised it was not included as she felt this should be at the heart of every Council decision.  The representative from Grant Thornton absolutely agreed and indicated that planning for the response to the climate change emergency and environmental aspects was something she believed would come into the programme going forward.  Grant Thornton had to operate within a specific framework to assess authorities on a level playing field and there were specific criteria based on National Audit Office guidance; however, that was not to say there was no discussion of the climate agenda, just that it was not a specific sector-wide requirement currently.

46.4          The Head of Finance and Asset Management advised that the management response to the key recommendation was set out at Pages No. 24-26 of the report.  He explained that Tewkesbury Borough Council was a small rural authority with limited levels of staffing in comparison to most other authorities.  Delivery of the Government business grants scheme was a significant task which needed to be done quickly and required individuals with a certain skill set, as such, there had been no choice but to redeploy the Internal Audit team to assist with that - if the Council was in that situation again, it was likely the decision would be the same.  What had not been foreseen was the length of the pandemic and the ongoing nature of business grants delivery throughout 2021, and into 2022, which had meant that the internal audit function had not operated for the duration of 2020/21.  Notwithstanding this, a lot of the audit plan was based on risk and, with almost £31m business grants paid out, that scheme was by far the largest area of financial risk for the Council, particularly as it was open to fraud and abuse.  Therefore, the redeployment of the Internal Audit team had been critical and was now paying dividends as there was a high level of compliance and low levels of fraud which was much better than a number of other local authorities.  Nevertheless, it was accepted there had been no internal audit function during that period and a plan was being put in place to deliver an Internal Audit Plan over the next three years encompassing the first year of the pandemic and the coming year.  Resources were being reinvested into internal audit in order to increase capacity to deliver more in year three. 

46.5          Whilst he accepted the external auditors’ recommendation, the Chair supported the action which had been taken by Officers and felt it was the right decision based on the situation at the time.  He wished to put on record his thanks to the Internal Audit team for the work they had done to ensure grants were delivered to the public.  Another Member agreed that what had been done was completely understandable but also that Grant Thornton had to highlight it.  He asked whether anything had slipped through the net as a result of the absence of an internal audit function, and if Officers would even be aware of that, and if there were any potential areas of concern which would need to be focused on during the first 100 days of the plan.  The Head of Finance and Asset Management indicated that it was unfortunate that the Head of Corporate Services was unable to attend today’s meeting as he would have a better idea of where resources were likely to be placed.  A lot of Council services were still in response mode and therefore could not be available to internal audit, as such, the first part of the plan would pick up areas that were available for review – if there had been any major failings or breakdowns in control it was likely Officers would already know about them.  During the second half of the year, when services were hopefully back to normal, there would be more detail on specific cases that would be picked up by internal audit and taken into 2023/24.

46.6          A Member drew attention to improvement recommendation 8, set out at Page No. 43 of the report, which related to benchmarking and he asked if this was something which other Council’s did and whether there was a comprehensive database available to use for those purposes – it was a good idea but he wondered if it was practical and whether the information was available to allow meaningful comparisons to be made.  In response, the Head of Finance and Asset Management agreed that, in principle, it was an excellent idea but it was important to take care with benchmarking as it could only give an overview of what might need to be investigated and it was necessary to have the resources in place to look into the issue in detail.  The Chartered Institute of Public Finance and Accountancy (CIPFA) had previously published statistics and was a highly reliable resource but the number of local authorities participating had reduced therefore the reliability had also decreased.  Notwithstanding this, local authorities still provided returns to Government so statistics could be produced in relation to revenue outturn etc.  He undertook to look into this further to see if good data was available for benchmarking which could be incorporated into financial reporting to relevant Committees going forward.  The representative from Grant Thornton advised that benchmarking was a useful tool to support medium term financial planning; whilst the current financial position of the authority was looking healthy, it was important to think about the longer-term, especially whilst waiting for a decision about Government funding streams.  Comparisons against nearest neighbours and those authorities with a similar set-up would help to understand what others did well and gave scope for future opportunities, savings and efficiencies.  A Member expressed the view that, if benchmarking did exist then Tewkesbury Borough Council ought to be contributing so the fact it was not raised the question of how meaningful the available data was.  The Head of Finance and Asset Management felt this was a good point as qualitative information was needed to gain a full picture of what was going on, for instance, if there was the same level of outputs/quality etc.

46.7          With regard to improvement recommendation 3, set out at Page No. 33 of the report, a Member noted that the Council’s cashflow forecasting was for four months and at the same time he noted there was only an annual settlement which made forecasting into the future extremely difficult.  Although he appreciated the recommendation and accepted it was sensible to forecast, he suggested either a rolling cashflow forecast or planning for one year ahead.  The representative from Grant Thornton explained that a rolling cashflow position was fine.  Some decisions the authority made were in response to an immediate requirement and reports were taken to the Executive Committee on the treasury management position and how that was being delivered against but it was important to supplement so that, if the need arose later down the line, Members had the information to understand the expectation.  She appreciated that a lot of estimation was required but it would give a medium-term view of the Council’s liquidity position.  The Member asked if outcomes would be set-up and measured against that and was advised that no specific key performance indicators were being proposed, the recommendation was simply saying that a very short term view was being taken on the cashflow position and there would be merit in looking at a slightly longer-term horizon.  The Head of Finance and Asset Management advised that, from an Officer perspective, cash flow was set at the start of the year for a 12 month period based on the information available but he was happy to do this on a rolling basis, although it was more difficult given the constantly changing economic situation.  The level of investments which were call-able, and the ability to borrow from those investments in the event of cashflow difficulties, meant that the Council was able to respond quickly to any issues.  Ideally, forecasting would be further into the future but he did not think there was a serious financial risk from not being able to do that.

46.8          In respect of improvement recommendation 4, set out at Page No. 34 of the report, which stated that consideration should be given to making a clear distinction between statutory and discretionary spending in budgetary information provided to Members and published on the Council’s website, a Member asked what was the norm in other authorities.  The Head of Finance and Asset Management advised that, in his experience, Councils reported in a number of different ways and, from Tewkesbury Borough Council’s point of view, there had never been a call to report this from key stakeholders, such as Members, so it did not differentiate between statutory and discretionary spending – there was an element of discretionary spending within statutory services so if this recommendation was implemented it would be necessary to break down services into statutory and discretionary and to do something with support services as these were in groupings currently which allowed more scrutiny.  Making this change would result in a lot more work for something which had not been requested by stakeholders.  The representative from Grant Thornton advised that the recommendation was trying to highlight the fact that decisions were getting harder for authorities as the financial position was becoming more uncertain, for instance, identifying alternative ways of delivering services or not continuing with services etc. so when the Council was setting its budget Officers should think about how to inform Members to make the decisions they needed to make when approving the budget – this was hard without knowing the ‘must-do’s’. 

46.9          Turning to improvement recommendation 5, set out at Page No. 35 of the report, which suggested that savings plans over the life of the Medium Term Financial Strategy should be formalised and approved by Council with any savings being monitored to ensure the required amounts were being met, a Member noted from the management comment that consideration was being given as to how individual reporting could be formally collated, and what the most appropriate level of reporting was, and she asked what the timescale was for this.  The Head of Finance and Asset Management advised there was currently no timetable but it would be picked up in quarter one 2022/23 as a specific recommendation.  The authority currently reported to different Committees and Working Groups including Executive Committee, Overview and Scrutiny Committee and Transform Working Group so this information was available but was not collated into one report for the benefit of the Executive Committee as the budget holder for the Council.  Officers needed to look at the best way to bring the information together and the level of reporting – it was intended to look at 2023/24 and the difficulties which might be faced that year and an appropriate savings plan that could be put in place.  The team was striving to generate more income and become more efficient but this was the twelfth year of austerity so savings plans were not as easily deliverable as they had once been with fewer areas to target for savings each year.  A lot of the Council’s future financial sustainability was based on growth and the targets the Government put in place in terms of housing and business growth.  The Member asked whether a report would be brought back to the Audit and Governance Committee and clarification was provided that the report was intended for the Executive Committee as the budget holder for the Council.

46.10        A Member made a general comment about the photographs which had been used in the report - which she assumed were generic - in particular the photograph on the front of the report at Page No. 19 and pointed out that, as a woman, she did not feel particularly included.  The representative from Grant Thornton undertook to feed this comment back.

46.11        It was

RESOLVED           That the external auditor’s annual report 2020/21 be NOTED.