Agenda item

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), Mr Tim Cutler and Mr Josh Parkinson, KPMG introduced the report.

The meeting heard:

·         Expectations to the Council was being driven by two main factors. Firstly, the level of savings being approved and whether they were transformational or small level savings and, secondly, the degree to which the agreed savings within the budget were also being delivered. The budget may say that there was around £60 million of savings that had been identified, but a lot of these related to the undelivered savings from the last two financial years. The Council had the ability to truly transform. Adult Social Care was a good example where larger value savings could be made. However, there was also the management capacity capability to actually execute those plans.

·         The onus could not be put solely on management, because the degree to which some of the transformational savings were being approved was still important. KPMG would observe what happened at the March 2026 budget process and then respond accordingly.

·         KPMG’s role as local auditors was to give assurance to the taxpayer. There was a situation at the Council which was deteriorating due to the increased reliance on resilience funding to balance the budget as this created a debt that would sit on the Council’s balance sheet and would require servicing for the foreseeable future. This would need escalating and highlighting. The statutory recommendation would involve a report from KPMG to the Council. This would be part of the escalation process. It was likely that Cabinet would respond and this would be publicly shared and copied to the secretary of state.

·         After an issue had been highlighted, it was then up to other parties to decide on what the appropriate response was.

·         The Council was aware of the challenges relating to its commercial property. There were a number of leases and rents that needed review. Much work was focused on this and had been pointed out as part of the report by KPMG. It had been reported that pace had picked up in the last six months or so. All options were being considered. No options had been ruled out in terms of additional capacity. The reviews could either be done with a smaller amount of resources and take longer or with a larger amount of resources, but quicker. These options were being tested, including if it would be cost effective to bring in some external support to the internal team given the work still required. The Council wanted to get to a position where all rent reviews and lease reviews were current and then return to a more business as usual stance. Ensuring that the Council collected all the income that it was due was going to be an important indicator in improving its financial sustainability. Additional capacity was needed, but how it would be done was still under consideration.

·         If the Council was going to significantly increase the level of savings that it delivered, 80% of that total expenditure related to service lines, including statutory services. It was not possible to avoid such service lines with a hope to closing the financial gap. A large proportion of the Council’s budget went on statutory services. Statutory services and outcomes could be delivered in a number of different ways. The Council should not look at any service that it provided to make sure that it had been delivered in the most efficient and cost-effective way. This included the Council’s statutory services particularly Adults, Children's and temporary accommodation, which the Council knew were its big drivers for cost pressures. There were still statutory responsibilities that were not changing unless there was a reform or changes in legislation. Such services were not exempt from looking at the way they were delivered.

·         Long-term debtors had been previously disclosed a net. The underlying information pointed to a £45 million gross and a £41 million provision and then there was a net. The vast majority of that long-term debtor was that that long-term data. There was not much else that we that KPMG had raised yet.

·         Various financial situations existed within the London boroughs.  There were several London boroughs who had never received a disclaimer. Their auditors kept their audits up to date without any modification. These would continue with the normal annual audit process as they had before. In relation to being able to restore assurance ultimately and remove disclaimers, the number of years that a Council had received a disclaimer was key to the level of materiality risk experienced in those reserves. Haringey would be one of the more challenging authorities to remove the modification simply because the financial position in which the Council found itself meant it was likely that there was material risk to reserve levels because they were so fundamental to the Council’s financial sustainability at present. There was also the number of disclaimers the Council had received over a period of time. The Council found itself with two disclaimed years. The Council needed to get to a point where it could assure all of its closing balance sheet and the INE, then it could rebuild.KPMG could not assure the reserve movements until there was a fixed end point.

·         It was not valid to proclaim that the state of the Council’s pension fund could support the Council in its current position. This was a decision on what level of contributions the Council was expected to make within any tri-annual period. The pension fund custodians needed to set those contribution levels at a prudent level which protected the interests of the pension fund. The movements between surplus and deficit from year to year did not get taken into account in the Council’s operating position. The Council had a pension reserve which largely absorbed the impacts of the surplus or deficit. The surplus or deficit was largely driven by a variety of factors that did not impact the Council on a cash basis year to year. This would include CPI assumptions, mortality figures and other long-range assumptions which would not necessarily drive the Council’s INE and cash position on any given period.

·         The Council had two separate actuaries, one that had been appointed by the pension fund and one that had being appointed by KPMG. These views differed slightly, but none of them to any material degree. Arguably, the pension fund actuary had far more information at their disposal to make certain assumptions than KPMG. All KPMG did was confirm if it was materially correct. The pension fund was managed completely independently of the Council. The Council had its actuary and took the advice of the actuary. They examined the Council’s liabilities, assets and made some recommendations around employer contributions. The Council was just one employer out of 86 in the pension fund but that was made completely independently by the recommendation of the actuary and the recommendation to the Pension Committee and Board.

·         The Council was aware that exceptional financial support was not sustainable. The £10 million borrowed in 2024/25 and £37 million so far in the current year was not sustainable. This was borrowing for the future which was adding borrowing costs including interest cost and minimum revenue provision over the next 20 years. Upon getting into debt, it was difficult to make the level of reductions to not be reliant on exceptional financial support. Some work would be done over the next six months to understand how to tackle this issue. There would be no further funding from Government. The financial position was driven by the increase in the demand and the increase in the price. There had been a small increase in government funding. It may be possible to generate income locally, but Haringey was more limited than other boroughs. It would be difficult to confirm that the Council would close its budget gaps over the next five years. The use of exceptional financial support was the only option for the Council at the moment.

·         In terms of asset disposal, the Council had a disposal strategy. Good asset management was about disposing of surplus assets and investing in assets that the Council needed. Regardless of the financial position, this was good asset management. The Council’s disposals did follow its disposal strategy that had been agreed by Cabinet in June 2025. Exceptional financial support came with significant costs, borrowing costs and particularly when interest rates were still approximately 5% or 5.5% (rather than at 2%). The Council needed to be critical in seeing if there were assets that were surplus to requirements and therefore would avoid the borrowing cost for the next 20 years. The Council needed to make the most of the assets that it had both operationally and commercially, but could not hold onto assets that were not of a financial benefit to the Council. The Council could not dispose of a significant number of assets that could cause problems in future. The Council was applying a pragmatic asset management approach to its portfolio.

·         The previous auditors, BDO delivered three successive disclaimers (2021, 2022 and 2023). KPMG had since delivered two disclaimers (2024 and 2025). For the three years which were disclaimed by BDO, no audit work was delivered for those periods other than the minimum required to deliver a disclaimer.

            The Audit Committee RESOLVED:

1. To note the Audit Findings Report of the auditors, KPMG and the management responses in the KPMG action plan contained within the report.

2. To give the Chair of the Committee and the Corporate Director of Finance & Resources (S151 Officer) authority to sign the letter of representation to the Auditor.

3. That the Committee delegates the approval of the Statement of Accounts 2024/25, subject to any final changes required by the conclusion of the audit, to the Chair and to the Corporate Director of Finance & Resources (S151 Officer).