Agenda and minutes

(a) To approve as an accurate record and the Chairman to sign the minutes of the meeting of the Audit and Pensions Committee held on the 15^th March 2012, and;

(b) To note the outstanding actions.

Councillor Iggulden raised the issue of employer contributions, and asked whether the agreement between the Local Government Association and trade unions would result in a reduction. Jonathan Hunt, Tri-Borough Director of Treasury and Pensions, said that the proposals as they stood would result in a small reduction, estimated at 2%, and included provision for cap and collar/cap and share for employer contributions. However, he said that the primary driver for pension fund deficits was low interest rates, and the consequent high prices of gilts, and that employer contributions would likely remain high until interest rates rose.

The Chairman asked officers to contact Goldman Sachs to ask how the mandate had performed in the light of the poor investment conditions of the current period, and their positive position as stated in their presentation to the previous meeting.

Nikhil Agarwal, P-Solve, gave the Committee figures for the fees due following the introduction of the revised Legal and General mandate; he said that these were appropriate to the work entailed in the new mandate. Councillor Ivimy asked to see details of the fees due to each fund manager: officers agreed to present this to the next meeting of the Committee.

RESOLVED THAT

(i)                 The minutes of the meeting of the Audit and Pensions Committee held on 15 March 2012 be agreed as a true and correct record, and;

(ii)               That officers be requested to write to Goldman Sachs regarding their performance in quarter 2, and;

(iii)             That a full summary of fees be reported the next meeting of the Committee.

Apologies were received from Councillors Cartwright, Ginn, and Murphy, and from the trade unions representative, Sheela Selvajothy.

If a Councillor has any prejudicial or personal interest in a particular item, they should declare the existence and nature of the interest at the commencement of the consideration of that item or as soon as it becomes apparent.

At meetings where members of the public are allowed to be in attendance and speak, any Councillor with a prejudicial interest may also make representations, give evidence or answer questions about the matter.  The Councillor must then withdraw immediately from the meeting before the matter is discussed and any vote taken, unless a dispensation has been obtained from the Standards Committee. 

Where Members of the public are not allowed to be in attendance, then the Councillor with a prejudicial interest should withdraw from the meeting whilst the matter is under consideration unless the disability has been removed by the Standards Committee.

There were none.

RESOLVED THAT

(i) The terms of reference be noted, and that;

(ii) The appointment of a Vice-Chairman be deferred until the next meeting.

This report recommends the reappointment of a non-voting co-opted member to the Committee.

RESOLVED THAT

Eugenie White be reappointed as a non-voting, independent cooptee.

This report follows a request from Majedie to broaden their UK equity investment mandate to include a maximum of 20% overseas listed equities. Discussions on this report will be preceded by a presentation from Majedie.

Simon Hazlitt, relationship manager, and Rob Harris, fund manager, attended the Committee to explain Majedie’s request to vary the terms of the Council’s mandate to allow it to invest 20% of funds in overseas equities.

Simon Hazlitt set out Majedie’s performance from the inception of the mandate, noting that it had closed its funds a year after receiving the H & F contract, giving Majedie greater freedom of manoeuvre and ensuring a closer focus on existing clients. He then explained the recent performance of the funds, and explained the factors that Majedie believed would influence future equity performance, and would influence their decision making process.

He said that, while Majedie remained positive regarding London-listed equities as a whole, it was felt that certain sectors were underrepresented in it, meaning that stock related risk was higher, with holdings necessarily concentrated in a few stocks. He gave, as examples, the pharmaceutical sector, given the small number of large cap pharmaceutical companies listed in London, and the technology sector, which was poorly represented on the London exchanges.

He concluded by saying that the change was not structural but would enable Majedie to have additional options as it sought to exceed the benchmark.

The Chairman noted that Majedie had not coupled London-listed stocks with the UK economy, or sought to purchase overseas stocks in pursuit of overseas earnings. Mr Hazlitt confirmed that this was Majedie’s view, and that London was a thoroughly internationalised market with good exposure to overseas earning. He said that Majedie also believed that London-listed equities were well-priced, and the smaller exchange made investment more practical. However, it was felt necessary to have some flexibility for the reasons described given earlier.

Councillor Ivimy asked what funds the Council had invested with Majedie, and where these were held. Mr Hazlitt said that the Council had £136.8 million invested, £90 million in Majedie’s UK Equities fund, £35 million in the UK Focus fund, and £10 million in Tortoise, a long/short absolute return fund, focused on delivering steady returns. In response to a further question from Councillor Ivimy, he set out the fee structure applying to each element of the Council’s holdings, and how these were affected by performance. He said that there would be no increase in fees as a result of the change, but there would be an increase in custodial costs, offset by what Majedie believed to be the greater advantages of the new arrangements.

With regards to the Tortoise fund, Mr Hazlitt confirmed that it was able to invest overseas, for up to 45% of its holdings. It was also allowed to undertake short selling, doing this through the purchase of contracts for difference, with gross exposure greater than the value of the investment. However, the fund did not use financial gearing, and was designed to ensure steady returns, with a focus on performing well in adverse market conditions.

Eugenie White said that the Committee had been misadvised with regards to its investment in the Tortoise Fund, which she  ...  view the full minutes text for item 6.

This report prepared by P-Solve, provides details of the performance and the market value of the Council’s pension fund investments for the quarter ending 31st March 2012.

ikhilAgarwal, P-Solve, introduced the report, which set out the fund’s performance in the quarter to 31^st March 2012. He said that it had been a good quarter, with riskier assets performing reasonably well. He said that confidence had declined starkly in the following quarter, with risk assets performing more poorly. The Chairman asked whether, given that the Dynamic Asset Allocation Mandates had failed to capitalise on improved markets, they could expect to outperform a negative market as previously. Mr Agarwal said that the equities mandates were performing in line with the market, but the Dynamic Asset Allocation mandates were designed to perform in such circumstances.

Eugenie White requested that the report show LIBOR, Councillor Ivimy requested that report show whether returns were net of fees, Councillor Iggulden noted that the period to judge Goldman Sachs’ performance should be shorter than their suggested 5 years, and the Chairman requested that officers invite the private equity fund managers to attend a future meeting of the Committee.

RESOLVED THAT

(i)                 The report be noted, and;

(ii)               That future performance reports include the LIBOR rate and state the position of the figures in relation to fees, and

(iii)             That the private equity fund managers be invited to a future meeting of the Committee.

This report updates and amends the Statement of Investment Principles of the Pension Fund.

Jonathan Hunt, Tri-Borough Director of Treasury and Pensions, introduced the report, which set out the updated Statement of Investment Principles.

RESOLVED THAT

The Statement of Investment Principles be agreed, subject to references to the Audit and Pensions Committee being amended to read Audit, Standards and Pensions Committee.

The report draws members attention to the Local Government Pension Scheme retirements that occurred in 2011/2012 and the consequential effect on the pension fund.

It also reports the number and value of redundancy payments made by the Council in 2011/12 for information. Appendices 1 and 2 are contained in the exempt agenda under Item 17.

Debbie Morris, Bi-Borough Director for HR, introduced the report, which set out the retirements and redundancies affecting the fund in 2011-12. She said that while these did not give rise to an increase in employer contributions for the local authority, they would require an interested contribution from three admitted bodies.

RESOLVED THAT

The report be noted

This report updates the Committee on the work of the Council’s external auditor, the Audit Commission.

Jon Hayes, District Auditor, introduced the report, which set out the external auditor’s current work and general issues. He said that work had begun on the Pension Fund and Wormwood Scrubs Charitable Trust, and that the General Fund accounts were due shortly.

In response to a question regarding Housing Benefit, Mr Hayes clarified that the issue related to the time taken to process changes in claims. He said that the additional days required made claim files more complex, increasing the difficulty of the audit and increasing the risk of a claim being mishandled.

RESOLVED THAT

The report be noted.

This Head of Internal Annual Assurance report is a summary of all audit work undertaken during the 2011/12 financial year and provides assurances on the overall System of Internal Control, the System of Internal Financial Control, Corporate Governance and Risk Management.  In all cases a satisfactory assurance has been provided with the exception of the significant control weaknesses recorded in the report.  The report is a key element of the evidence supporting the Annual Governance Statement (AGS).

Geoff Drake, Chief Internal Auditor, introduced the report, which set out his annual report to the Committee. He said that significant control weaknesses were identified in 2.2, and that these would be fed into the Annual Governance Statement. With regards to the item relating to reconciliation, Hitesh Jolapara, Bi-Borough Director for Finance, said that this would not be in the AGS Action Plan, as it had been agreed as unnecessary following discussions between Internal Audit and himself.

With regards to the issue regarding home repairs and adaptations, Mr Drake said that the issue related to the calculation and apportionment of charges. With rgards to the programme of tests mentioned at 1.7.5, Mr Hayes clarified that these were carried out by the Internal Audit service to check whether external audit testing was necessary.

RESOLVED THAT

The report be noted.

This report updates the Committee of the risks, controls, assurances and management action orientated to manage Organisational level risks.

Michael Sloniowski, Principal Consultant- Risk Management, introduced the report, which set out risk management activity undertaken in the previous period. He described ongoing work with the Housing and Regeneration department, and the increased focus on Tri and Bi-Borough integration. He also described work undertaken with Business Continuity and Emergency Planning in the light of discussions at the previous meeting of the Committee.

Councillor Ivimy asked whether the legal and contractual risks that the Council faced, such as judicial reviews, were included in the risk register.

RESOLVED THAT

The report be noted.

This is the annual report on the progress made in delivering the 2011/12 year service plans; key results of the work undertaken, and the performance achieved

Geoff Drake, Chief Internal Auditor, introduced the report, which was the annual report of CAFS for the 2011-12 financial year. He said that the service had seen a reduction in staff numbers at the start of the year. The service had made 24 prosecutions, with 209 successful outcomes overall, with £8.5 million in fraud detected. He said that £700,000 had been recovered in the year, of which £280,000 had been recovered by CAFS. He said that work was underway to establish a single Tri-Borough fraud investigation service.

The Chairman asked whether CAFS was able to monitor what percentage of funds recoverable were subsequently recovered. Mr Drake said that the system used by debtors did not automatically tie the funds recoverable to the CAFS investigation, and would require some interrogation. Jane West, Executive Director for Finance and Corporate Governance, said that officers would look at what information could be made available.

Eugenie White noted that the performance of the service had been good, but asked whether a reduction in capacity meant that cases worthy of investigation were not proceeded with, with a possible reduction in the deterrent effect. Mr Drake said that CAFS investigated those cases in which the evidence was strongest and the possible offence committed most serious, and that the service manager was given a target based on the quality of outcomes. He said that there would always be cases that were not investigated.

RESOLVED THAT

The report be noted.

This report summarises internal audit activity in respect of audit reports issued during the period to 31^st March 2012, as well as reporting on the performance of the Internal Audit service.

Geoff Drake, Chief Internal Auditor, introduced the report, which set out internal audit activity in the period to 31 March 2012. He said that there had been 19 reports and 3 management letters issued from which 3 limited assurance reports had been issued in the period, which had been distributed to members with the agenda, all recommendations for these reports past their due date for implementation had been implemented. He was also able to report that there no outstanding reports or recommendations to report to Committee.  It was reported that the updated Internal Audit  plans for the 2012/13 year were provided at Appendix B following agreement of the tri- and bi- borough elements of the plan with K&C and Westminster.  A tri-borough project has now commenced to establish  single tri-borough services for internal audit, risk management, and fraud.  Progress on these will be reported to future Committee meetings

RESOLVED THAT

The report be noted.

The Committee is invited to resolve, under Section 100A (4) of the Local Government Act 1972, that the public and press be excluded from the meeting during the consideration of the following items of business, on the grounds that they contain the likely disclosure of exempt information, as defined in paragraphs 1,2,3 and 7of Schedule 12A of the said Act, and that the public interest in maintaining the exemption currently outweighs the public interest in disclosing the information.

RESOLVED THAT

Under Section 100A (4) of the Local Government Act 1972, the public and press be excluded from the meeting during the consideration of the following items of business, on the grounds that they contain the likely disclosure of exempt information, as defined in paragraphs 1,2,3 and 7of Schedule 12A of the said Act, and that the public interest in maintaining the exemption currently outweighs the public interest in disclosing the information.

RESOLVED THAT

The update be noted.

RESOLVED THAT

The report be noted.

RESOLVED THAT

The report be noted.