Agenda item

Report (appendix 1) to follow.

For those charged with Governance (the Audit Committee) to consider the statutory Annual Report from KPMG, which highlights their findings from the audit of the Council’s statutory accounts, value for money and other relevant information.

Mr Kaycee Ikegwu, Head of Finance (Housing & Chief Accountant) and Mr Tim Cutler, KPMG, introduced the report.

The meeting heard:

·      In relation to the use of agency staff, KPMG highlighted it as a risk they felt it was an area not just from a cost point of view, but from an ethical point of view. Ideally, the Council would have more substantive people in place for cost neutrality. Whilst an individual member of agency staff may be more expensive than a directly employed member of staff, when all the additional costs of employment was taken into consideration, there was not a huge amount of difference. Efficacy was not present as directly employed permanent staff had greater continuity, career ambition and cumulative knowledge. People coming in and out of the organisation on a regular basis meant that knowledge was potentially lost. Although not a significant financial loss, it was a point worth reflecting.

·      A query was raised regarding recommendations made for tracking recommendations going to in future years. In response, the meeting heard that there were two ways this was done. Firstly, they formed part of the annual governance statement. In the next Annual Governance Statement (for 2024/25), each recommendation would need to have an update provided. KPMG would also be looking at progress against any recommendations. Any recommendations KPMG raised this year would be followed up. The recommendations put in the auditor's annual report would be in the public domain, the ones in the ISA 260 report would be public in the sense they were on the agenda papers, but they were not ones that necessarily would be subject to response regarding significant weaknesses within the value for money conclusion. Any that did relate to the significant weaknesses, if not addressed by the time that KPMG concluded its audit for next year, clearly remained a risk and the weaknesses would remain in place for the following year's conclusion.

·      Part of the reason any concerns would be raised was because KPMG’s conclusions should mirror the Council’s own assessment of internal control through the Annual Governance Statement (AGS). As a key plank of internal control, there were things that the Audit Committee should have oversight of and ensure these were being actioned. Issues being flagged as significant weaknesses with significant recommendations matched against them would probably give the Council some impetus to say that unless the issues were actioned, the weaknesses and arrangements would remain as flagged. 

·      The AGS was submitted to the Committee twice a year and it may be useful to have it submitted more often and this would be considered. The AGS was submitted to the Committee in July 2024. An update would usually be brought six months later. 

·      In relation to voids, this was where KPMG had the most debate and challenge as to whether or not it merited the status of significant weakness. KPMG believed it had reached the right conclusion. In the end, it was clearly a risk and one that KPMG spent a lot of time talking to Housing Leadership and other directors. KPMG were previously party to a lot of the correspondence with the regulator on some of the issues. Whilst voids was an area of concern and one that KPMG felt appropriate to bring out in its commentary in the public report, KPMG’s role was to assess whether or not there were weaknesses in arrangements that required resolution. Having sight of some of the assurances or the more positive tone of the correspondence from the regulator about the action that management had taken to address some of the issues, KPMG had felt more assured that the area fell short of a significant weakness. Management had started to put the foundations in place for how to respond. Voids remained an issue, but one KPMG would keep a watching brief on through the FY25 risk assessment. If KPMG did not feel that the pace of response was as quick as it was expected, the issue could then return to significant risk and weakness status in the future.

·      In relation to Procurement, the use of an IT application or system did not change compliance, culture or behaviour. The system would support the Council’s compliance with the Procurement Act, help the Council keep track of the contracts register and help to publish all the notices that needed to be published under the new Act. Some of the significant weaknesses that KPMG had picked up in their report had also been reported to the Committee in the past. It was important to get both procurement and the commissioning arrangements right.

·      Across capital and revenue, the Council was spending about £600 million on contracts.There was an incentive to look at the Council’s contract spends and its procurement processes just to ensure that the Council was getting value for money. This might be part of the solution to the £37 million shortfall.

·      The Council’s track record was not where it wanted to be in terms of delivery of savings. This had also become subject to KPMG's annual auditor’s report. The Council, as part of the work to develop the budget, had gone back over existing savings including those that may have been approved in previous years. Budget holders had been challenged to deliver savings. In terms of new savings, there was between £22-23 million of new savings proposed for next year's budget. It was difficult to recommend a budget to Cabinet only to then inform Council that it was not likely achievable. There was no absolute assurance that the savings proposed were completely achievable and so there was a contingency to manage some of the risks around delivery. However, the Council could not afford to not deliver any‘Category A’ projects (big transformation projects). These were monitored and had a good governance framework. However, the Council often forgot about other savings that needed to be delivered.  A tighter corporate grip would be taken regarding the delivery of all savings. Responsibility for this sat generally with the service area, but there would be increased oversight.

·      The use of monitoring tools included holding conversations with the budget holder and benchmarking. An electronic monitoring system may be useful in the future.

·      Any modification in the KPMG audit opinion this year was purely due to the backstop date. There was work that would have to be done on reserves and the valuation of property plant and equipment, which would mean KPMG going back to previous periods. For example, the valuation report from FY23, which was subject to a time limitation. KPMG were hoping to agree a more efficient effective approach for FY25 which would mitigate the need to do a lot of that work. The significant risks noted was likely to be noted in the plan for FY25 as those significant risks were driven by either the largest or most subjective areas of the Council’s financial statements. For example, valuation of property pensions. There was nothing KPMG had come across as part of its work to suggest that there was a material error, but KPMG had not been able to do the sufficient work to say there was not.

·      In relation to journals, the recommendation raised was one that was common in public sector organisations. The ideal and most effective control from an audit point of view was that the Council had a 100% approval process on journals, so that when a journal was posted, it would immediately go to a different individual to approve that journal with an appropriate audit trail so that they had the information they needed to show that it was a valid Journal. This functionality did not always exist in some organisations and there was also an issue whereby, often, a lot of time was required by management to implement this control. KPMG usually saw a more refined control whereby some over a certain level would need approval or a scan review would be taken of a batch of journals. However, this would fall short of how well this method could be relied upon on by KPMG as auditors. Management could simply say they did not wish to implement it, but KPMG was discharging its duty so that the Council was aware. It would not prevent KPMG giving assurance on journals in the future, but KPMG would probably have to do more work on them than it would normally have to because of the lack of control in terms of the high-risk journals.

·      The journals were not high risk by management's definition or even by the Council’s definition, but KPMG would apply a series of lenses to its journal screening, such as journals posted by a certain individual.

·      KPMGs recommendation was more around management bringing in a certain level of review of the journals that had been posted.

·      The Council had a mechanism in place for posting journals. Any journal above £50,000 was reviewed by senior officers. In terms of posting of journals, individuals would go through approval and was reviewed by a service Assistant Director, before it was posted by someone else. Any that were £50,000 and above, another individual would check it, before it was reviewed by a different person and posted.A spot check of journals would be done including who reviewed it before it was posted to see if that person had the appropriate rights.

·      In terms of following up the value for money weaknesses, this would be done as part of KPMG’s FY25 risk assessment. If KPMG did not feel that recommendations had been addressed satisfactorily, they would remain as risks or weaknesses. This was true for the significant ones but also for areas like social housing and governance weaknesses. It had been decided that they were not significant, but these would be looked at again to check that there's been no significant change in those areas.

·      In terms of management's approach to the audit, it had been a very difficult period for them as they had been without auditor challenge for quite a while and there was an element of “ring-rust” regarding how to respond to an audit. One of the first visits KPMG had to Haringey, there appeared to be a desire from wider members of the finance team to get involved with the audit. Although there been problems, they largely came from an unfamiliarity with the level of the request, not from a place where there was a resistance to providing information.

·      In relation to fraud, the £160,000 threshold required a more flexible control approval to go out to procurement.  The Council was looking to change this and bring in more stringent controls and challenging if the £160,000 limit was too high. This was being reviewed. The Council was also looking at low spend contracts as collectively it was quite high.A change in behaviour was likely required to understand the procurement rules so a whole communications and engagement piece was needed for anybody involved in any purchasing to remind them of their responsibilities.

The meeting acknowledged that the Legal advisor to the Committee, Ms Benita Edwards, was leaving Haringey Council and thanked her for her hard work and dedication to her role.

RESOLVED:

1. That the Committee consider the contents of the report and any further oral updates given at the meeting by KPMG.

2. That the Committee notes the Audit Findings Report of the auditors, KPMG and the management responses in the KPMG action plan contained within the report.

3. That the Committee gives 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 delegates the approval of the Statement of Accounts 2023/24, subject to any final changes required by the conclusion of the audit, to the Chair and to the Chief Financial Officer (S151 Officer).