Agenda item

*Clerk’s Note – The Chair agreed to vary the order of the agenda, in order to take the item on the renaming of Black Boy Lane as the last item of the open part of the meeting. The minutes reflect the order of that items were considered rather than the order of items on the published agenda.*

The Committee received a copy of the draft statement of final accounts for 2029-20, along with the audit completion report from BDO and a covering report, as set out in the second dispatch agenda pack at pages 3-252. The item was introduced by Kaycee Ikegwu, Head of Finance and Chief Accountant and Leigh Lloyd Thomas, Partner at BDO LLP the Council’s external auditor.  At the behest of the Chair, Leigh Lloyd Thomas gave a short verbal overview of the Audit Completion report. The following key points were set out to the Committee:

1. The Committee were advised that the outstanding issues were below the 1.5% threshold of materiality and so BDO were happy that the accounts were a fair and true reflection, even without concluding the outstanding issues.
2. The Council was a significant land owner and one of the issues commented on was the under-valuation of a sample of properties by £4.3m. This was likely due to inaccurate information being supplied to the valuer. Schools had also been undervalued by around £26m but most of these had now been corrected. BDO advised that Pendarren had also been undervalued. A key area for the Committee to note was identified as inaccurate data being send to the valuer.
3. Another area to for the Committee to note was around bank reconciliations being out and the need to review processes behind this.
4. The Committee noted that the Council’s pension liability moved a lot in the Council’s favour following the triennial valuation.
5. The Committee was advised that there would be a significant hit to the HRA arising from the Thames Water court case brought by Kingston and the consequent requirement for local authorities to reimburse applicable excess water rents and charges to tenants. It was noted that at present the Council had only agreed 6 years’ worth of reimbursements  and that a further management decision on the amount of money to be set aside was pending.
6. The MRP holiday was due to run out in 2023, which would result in a £5-6m cost to the Council per year.
7. Haringey was in an advantageous position compared to some other authorities in relation to not having a lot of commercial property schemes.
8. BDO advised that it appeared as though they would be able to give a true and fair determination overall. The next stage was for BDO to make adjustments following the responses to queries received from management and then the final statement of accounts would be issued and signed off by the Committee/Chair.

The following arose from the discussion of this agenda item:

1. The Chair commented that was satisfied with the position overall but highlighted that there seemed to be a number of long-standing concerns and re-occurring issues that had come up in recent years. The Chair set out that it was important that the authority got on top of these issues going forwards.
2. In response to a question around the purchase of Alexandra House, BDO advised that it was not unusual for purchases to go through a controlling entity as there were tax advantages in doing so. However, in this instance the vendor applied for planning consent to alter the layout to residential properties, which had increased the value of the property  and the Council had found itself in a position where it perhaps had to pay over the market value given the problems with River Park House and the Civic Centre. The Council effectively had to write down the £22m paid to the £16m underlying market value of the property.
3. In response to a follow-up question, BDO advised that it was not within the Council’s gift to extend the lease on Alex House, they could ask but the freeholder was under no obligation to agree to do so. If the Council did not purchase the property, there was a risk that when the renewal clause came up in 2021 that the Council could have been without accommodation, given the work being done to other buildings.
4. In relation to a question around the valuation of schools, BDO advised that it was difficult to quantify market value for schools as they would never be sold, so the government based the value on the Depreciated Replacement Cost. This was essentially what it would cost to replace the asset. It was noted that this was a notional value, not a real market valuation, that did not impact the revenue budget. It was an accounting measure and a way of applying some economic consideration of the cost to the Council in replacing it, largely based on depreciation costs.
5. The Committee queried the Council’s involvement in relation to the Laurels and its under-valuation as the lease had been passed to the Bridge Renewal Trust. BDO agreed to pick this up with officers and the valuers outside of the meeting. (Action: BDO/Kaycee).
6. In response to a question, BDO advised that it was not the auditors job to make a determination of whether the Council should have bought Alexandra House. The authority did everything correctly in terms of looking at the fair value, costing up local office space, looking at cost of temporary  office accommodation and so forth. BDO commented that even though the Council paid what it did, this was  still the best option for the Council and the auditors had no problem with the decision making process involved.
7. The Committee was advised that the Annual Governance Statement was set by the Council and was not a function of the external auditors.
8. The Committee raised concerns around non-collection of receivables, given the large numbers involved and with £90m in uncollected debts, as set out in the statement of accounts. The Committee sought clarification around what this related to and whether other local authorities were in the same position. In response, BDO advised that Haringey was in the same position as any other local authority and the figures referred to related to the fact that some of the debts owed to the Council were issued under law rather than under contract and so had to be kept on the books and could not be written off for a period of six years. The Council held a lot of historical debt, some of which was very hard to collect. The example of £29m in outstanding parking debt was put forward. After 60 days and being unable to trace the owner of the vehicle, it was extremely unlikely the Council would receive any payment, but it had to leave the debt on its books for six years before being able to write it off. The same applied to housing benefit payments, where the recipient could no longer be contacted. 
9. In relation to debts from central government and health authorities, BDO advised that the Council had not provided any expected loss on these, which meant that it expected to get repayment in full, albeit it may take time. It was noted that central government did not allow local authorities to provide for non-collection of this and write the debt down.

The Chair invited the Head of Finance and Chief Accountant to address the Committee in response to the comments of the external auditor, noting the ongoing issues around valuations, conciliations and MRP etcetera.  The Head of Finance and Chief Accountant acknowledged that there were a number of errors that had been highlighted through the audit process, which had now been corrected and would be reflected in the final statement of accounts. In relation to the issues highlighted in the external audit report, management set out their responses to many of these issues at page 60 of the report. Issues identified around cash conciliations, were a legacy issue that had existed for many years but there were improvements in being made in clearing these. Many of the concerns highlighted in the report had been taken on board, and management would be working with BDO and partners on how best to take these issues forward for the 2020-2021 audit process to ensure that they did not reoccur. 

The following arose as part of the further discussion of this agenda item:

10. The Committee sought clarification around Thames Water overcharging and whether the Council could be liable if a tenant was evicted for being in debt due to the additional charges that were deemed unlawful. In response, the Legal Advisor to the Committee assured members that officers were looking into how to deal with the issue and the best approach going forwards. However, it was suggested that it was probably inappropriate to say anything further at this stage given that this was a public meeting.
11. The Committee sought further assurances from officers around the errors that were highlighted in the BDO report and what was being done to ensure that they did not happen again. In response, officers advised that at the end of every audit there was a list of issues that was compiled, and these were factored into the process going forward. In relation to the issue of PPE valuations, officers set out that the valuations were carried out by an external partner, WHE, and that there was always an element of subjectivity in determining something’s value. Officers had met with the valuers and BDO earlier in the week on how to take the valuation issues that had been highlighted forward and to set clear expectations for the process of compiling next year’s statement of accounts.
12. The Chair advised that overall, he was pleased with the level of progress that was being made to deal with some of the underlying problems that had occurred over the last number of years. The Committee agreed, in principle, to establish an initial working group, with a view to setting up a subsequent formal sub-committee, to monitor the underlying issues that had been identified in relation to the process of compiling the statement of accounts and to ensure that these issues did not reoccur in future years.
13. Cllrs Brabazon, Dogan, Carlin, Stennett and Berryman agreed to be part of the proposed working group. Cllr Barnes and Cllr Rossetti agreed to nominate a suitable representative from the Liberal Democrats. (Action: Chair/Clerk to note).

RESOLVED

1. That the Committee considered the contents of this report and any further oral updates given at the meeting by BDO LLP.

2. That the Committee approved the Statement of Accounts 2019/20, subject to any final changes required by the conclusion of the audit, being delegated to the Chief Financial Officer in consultation with the Chair.

3. That the Committee agreed giving the Chair of the Committee and Chief Finance Officer (S151 Officer) authority to sign the letter of representation to the Auditor.

4. That the committee noted the Audit Findings Report of the auditors, BDO LLP, and approved the management responses in the BDO LLP action plan contained within that report.

5. That the Committee agreed, in principle, to establish a working group to monitor the underlying issues highlighted in the BDO audit completion report and ongoing issues which had been highlighted from compiling the Statement of Accounts, more generally.