Agenda and minutes

(a) To approve as an accurate record and the Chairman to sign the minutes of the meeting of the Audit, Pensions and Standards Committee on 10 January 2013.

(b) To note the outstanding actions.

The minutes of the meeting held on 10^th January 2013 be agreed as a true and correct record.

There were apologies from Councillor Ivimy and Sheela Selvajothy, the Trade Union representative.

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.

Councillors Murphy and Cartwright declared an other interest in item 54.

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 31^st December 2012. It is attached as Appendix 1.

John Conroy, P-Solve, introduced the report, which set out the fund's performance in the quarter to 30 September 2012. He said that, due to the rescheduling of the meeting scheduled for December, the Committee had been briefed on performance for the period. He said that January had seen a continuation of the broadly positive market sentiment of the previous period, which he characterised as tempered confidence. He said that the 1 year return showed the fund repairing some of the losses caused in earlier periods, linked to the extraordinary performance of gilts.

He said that the fund's managers had performed well, and noted that Majedie had outperformed the market by 4.5%. He said that the managers who held dynamic asset allocation mandates had not performed as well, but this was reflective of their mandate. He said that both Barings and Ruffer had moved towards greater levels of equity holding, but remained understandably cautious about the fundamentals behind improved market sentiment. Their performance in 2012 had been further affected by a fall in the value of gold, but Mr Conroy said that P-Solve believed that the employment of the dynamic asset allocation mandates remained the correct strategy, given that doubts remained about the long term viability of a bull market.

He added that the matching fund managers had performed in line with expectation.  

Eugene White observed that Ruffer and Barings had been appointed at a time when LIBOR had been at 4%, and the mandate had been designed to match the actuary's assessment of the liabilities. The collapse in LIBOR meant that the performance achieved would not be enough to meet actuarial expectations. She added that she was concerned that both managers appeared to be late to capture the rise in equities.

She also asked about the net cash outflow from the fund; she asked why the funds had been withdrawn from the equity section of the fund. Jane West, Executive Director of Finance and Corporate Governance, confirmed that net outflows of cash were now likely. Mr Conroy said that the funds had been withdrawn from equities as that element of the fund had been over target.

With regards to the issue of the benchmark for Barings and Ruffer, Mr Conroy said that the DAA mandates had been designed to allow the fund greater manoeuvrability. He said that their performance should be seen in the light of large negative returns for equities, and a difficult investment climate in other sectors. He said that while he accepted the concerns about whether the managers had moved with sufficient dynamism, this should be set against the continuing disparity between positive sentiment and negative sentiment.

With regards to the demands set by the actuary, he said that no investment strategy could have delivered the required return, given market conditions. He said that the strategy to diversify had been the correct one.

The Chairman noted that the volatility of previous years, with heavy negative returns in a single given month, would see the 3 and 2  ...  view the full minutes text for item 54.

The report sets out the Council’s Treasury Management Strategy for 2013/14.  It seeks approval for borrowing limits and authorisation for the Executive Director of Finance and Corporate Governance to arrange the Council’s cashflow, borrowing and investments in the year 2013/14.

Dishal Sharma, Treasury Manager, Westminster City Council, presented a report outlining the proposed Treasury Management Strategy for 2012-13. He said that the approach was unchanged, both in terms of the overall aim of debt reduction and in terms of the investment strategy as outlined in section 11 of the report.

Councillor Iggulden asked what was being done in light of the high penalties to redeem debt, given that income from asset disposals had been used to cut debt. Jane West, Executive Director of Finance and Corporate Governance, said that the Council was lobbying the Public Works Loan Board to have an amnesty on debt rescheduling, while there were other options in relation to the Housing Revenue Act and the CFR in general.

Councillor Iggulden asked about Santander's exclusion from the list of approved deposit holders. Mr. Sharma said that though the UK subsidiary of Santander was classed as a UK bank, officers still believed that caution should be exercised in respect of long-term holdings, given the parent’s position; Santander was used for overnight deposits.

In response to a question from Cllr Ginn, Ms. West confirmed that the gap between external debt and the capital financing requirement was met from internal borrowing.

Eugenie White asked what had prompted the introduction of new investment categories. Mr. Sharma said that these had been introduced in Westminster since April 2012, and had offered better yields without additional risk.

Councillor Murphy asked for clarification of the relationship between asset disposal and debt.  Ms. West said that it was possible, though it had not happened yet, that the Council would reach a point at which receipts could not be matched against debt with expiring terms, with the terms for early repayment onerous. The Council was therefore lobbying for forgiveness on early repayment of PWLB debt, while seeking other ways to configure capital spending if necessary.

Councillor Murphy asked whether involvement in fraudulent LIBOR reporting affected the Council’s decision to invest in a bank. Ms. West said that the Council’s chief concern was that any monies invested were returned, and it did not therefore take into account problems such as the LIBOR scandal. Mr. Sharma noted that while a number of banks had already been implicated in LIBOR fraud, others may be drawn in.

RESOLVED THAT

The report be noted.

This report details the 2012/13 External Audit Plan as set-out by the Council’s newly appointed auditor, KPMG.  The plan (Appendix 1) describes how the auditor will deliver the financial statements audit work and sets out their approach to value for money (VFM) work for 2012/13. 

Mike McDonagh, Partner, KPMG and auditor to the Council, introduced the report, which was the first of its kind since KPMG had appointed the Council as its auditor. He introduced himself, stating that he had been appointed as auditor of the three Councils comprising Tri-Borough, and said that Samantha Maloney would be the audit manager for Hammersmith & Fulham.

He said that his role replicated that previously held by the District Auditor, in terms of both responsibility and powers, and that he would review and sign off the Council’s financial statements, form a view on value for money and answer questions and objections from electors.

He said that, for the sector as a whole, austerity measures represented the foremost risk to the Council, with a 25% reduction in funding meaning cuts to staff, disposal of assets and possible impact on services. He said that he had held discussions with the previous auditor and the responsible officers of the Council and had a good view of the Council’s financial systems and procedures.

He added that KPMG had no conflicts over taking the contract, and that the scale of fees meant that it was unlikely to cause a conflict. He concluded by saying that the fee quoted was considerably smaller, but it required the Council to produce good quality working papers, without which the fee would require upward revision.

Councillor Iggulden asked how KPMG came to be appointed as the Council’s auditor. Mr. McDonagh said that the Government had disbanded the Audit Commission’s audit business, leaving the Audit Commission to oversee audit work as a much smaller organisation. The Audit Commission had tendered the work of auditing Councils on a regional basis, with KPMG winning the contract containing Hammersmith and Fulham for an initial 5 years with possibility of extension.

Councillor Murphy asked whether a client had ever had a reduction in fees due to the quality of their working papers. Mr. McDonagh said that this had happened in a handful of cases in his experience.

RESOLVED THAT

The report be noted.

The report details the results of work conducted by the Audit Commission to certify grant claims in respect of the 2011/12 financial year. As the Audit Commission handed over external audit responsibilities for the Council to KPMG in autumn 2012, the report has been finalised by KPMG.

Mike McDonagh, Partner, KPMG, introduced the report which set out the results of the audit of the Council’s grant claims for the 2011-12 financial year. He said that the work underpinning the report had been done by KPMG’s predecessors at the Audit Commission. He said that the number of claims requiring certification was falling, and that the Audit Commission had issued 3 unqualified opinions and 2 qualified, with the latter including an issue relating to NNDR which had previously been reported to the Committee.

RESOLVED THAT

The report be noted.

This report summarises:

·            Progress on implementing recommendations arising from the Audit Commission 2011/12 Annual Governance Report

·            The action plans relating to the control weaknesses identified in the 2011/12 Annual Governance Statement and progress in implementing these action plans.

Geoff Drake, Chief Internal Auditor, introduced the report, which summarised progress against Audit Commission recommendations and against the AGS Action Plan. He said that progress in the quarter had been excellent, with recommendations either implemented or on track for implementation.

RESOLVED THAT

The report be noted

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

Mike Sloniowski, Principal Consultant, Risk Management, introduced the report, which summarised risk management activity in the quarter. He said that work towards Bi-Borough Risk management was continuing, and it had been decided that RBKC would host the service, though the Council would remain an equal partner.

He also said that work had been done on simplifying director’s statements for the next year’s Annual Governance Statement, and that an emerging priority was looking at maturing intelligence, particularly in relation to the Council’s supply chain, following the recent failure of a Council contractor.

In response to a question from Councillor Ginn, Mr. Sloniowski confirmed that Westminster had chosen to retain total sovereignty over their governance staff.

Eugenie White asked about the pattern of insurance claims, noting that it was hard to reconcile a trend. Mr. Sloniowski said that work was being done to measure the pattern, and that he was working with the officers responsible for insurance to see whether and if there was anything the Council could or should do to mitigate against further incidents. He added, in response to a question from Cllr Iggulden, that the nature of insurance settlements made it difficult to relate expenditure in a given year to incidents.

The Chairman asked about the failure of a Council contractor. Mr. Sloniowski said that it had come at a sub-contractor of a main contractor, and was therefore less easy to anticipate. He stated, however, that greater checks would be made of the critical aspects of a contractor’s performance. Jane West, Executive Director of Finance and Corporate Governance, said that Credit Safe had shown the sub-contractor to be low-risk, and Mr. Sloniowski said that he was looking to broaden the Council’s work in this area, including by speaking to private sector risk managers.

Councillor Murphy asked whether a Bi-Borough Service, with officers’ time split between the two boroughs, represented a potential risk in itself. Ms. West said that the communality of risks between the two boroughs meant that the Council could retain a significant capacity at half the cost, but performance would be monitored.

RESOLVED THAT

The report be noted.

This report presents the 2013/14 Internal Audit Plan for approval.

Geoff Drake, Chief Internal Auditor, introduced the report, which set out the work plan for internal audit in 2013-14. He said the plan was increasingly Bi and Tri-Borough focused, with significant entries in relation to change management, given its key role in the current climate.

The Chairman proposed, and it was agreed, to lift the guillotine until 10.15pm. He asked if there was any change to the previously planned programme.

Mr. Drake said that size of the Council’s change programme, and the arrangements that facilitated Tri and Bi-Borough, were of increased prominence.

The Chairman asked how the plan compared with the scope of work at other Councils. Mr. Drake said that he was aware of what happened at the other Tri-Borough Council, and that the Council was an active member of the London Audit Group, and discussed its plans and practices with them.

RESOLVED THAT

The audit plan be agreed.

This report summarises internal audit activity in respect of audit reports issued during the period 1 October to 31 December 2012 as well as reporting on the performance of the Internal Audit service.

Geoff Drake, Chief Internal Auditor, introduced the report, which summarised internal audit activity. He said that 17 reports had been issued in the period, and 12 letters sent for management response. 3 limited assurance reports were issued, which had been sent to the Committee, 2 of which concerned schools. All but 2 recommendations made in reports were either implemented or not due for implementation, and 7 outstanding reports were with Executive Directors for sign off.

Progress towards delivering the Audit Plan was good and it was expected to be 95% delivered at year end; the phasing of audit days had also improved.

Councillor Murphy asked about the management response to the audit report on the Theft Of Precious Metals. He noted that there was no intention to carry out a systematic risk assessment as suggested, and asked how this affected the likelihood of a further loss of precious metals.

Mr. Drake said that there was a risk, and the Council had had previous thefts; moreover, the cost of replacing stolen metals outweighed the cost of those metals alone. However, no funds were available for an inspection and cataloguing of all Council stock, so a sample survey, and the incorporation of an assessment of the vulnerability of metals into the rolling programme of inspection, had been agreed in the first instance.

Councillor Iggulden asked whether this represented a conscious decision to run the risk. Mr. Drake said that losses of £500,000 had already taken place, but raising awareness of the risk was key, particularly to encourage the reporting of metals at particular risk upwards.

RESOLVED THAT

The report be noted.

This report sets out the outcome of an investigation by Deloitte into the Earls Court Regeneration Scheme.

The Chairman moved that this item, which had been circulated after the main agenda, be heard first. He said that he hoped to hold discussion of the report in open forum, but that if the Committee wished to discuss individuals named in the report by name, excluding the press and public would be necessary.

Derek Myers, Chief Executive, said that he was happy to be named in the discussions, and that the decision to redact personal details was the decision of Deloitte, who had been appointed to undertake an investigation. He said that Deloitte had been commissioned, further to a complaint made to the police by Jonathan Rosenberg, to investigate allegations of a “movers list”. They were asked to assess whether any conduct by Council officers had been inappropriate and should lead to criminal or disciplinary investigation. He said that, in his opinion, the report offered assurance as to the probity of officers’ conduct, and that no further investigation was necessary.

Mike Clarkson, Deloitte, confirmed that Deloitte had insisted on the report being redacted, due to the requirements of data protection legislation.

Councillor Iggulden asked what experience of investigation the Deloitte investigators had. Mr Clarkson said that he was the managing partner of the public sector internal audit and anti-fraud investigation team, and had considerable experience of investigation work. His colleagues also had many years of investigative experience.

Councillor Cartwright said that he did not have an issue with the redaction of personal details, but was concerned by the late distribution of the redacted version. Mr Myers said that both versions of the report were distributed within 24 hours of their receipt. He said that the view of the Chairman and Vice-Chairman of the Committee was that the report should be considered as soon as possible.

Councillor Cartwright said that he had three concerns with the way the investigations had been conducted. Firstly, he felt that an investigation of computer records should have been conducted, and did not believe that a search of e-mails was inappropriately onerous. Secondly, that there was no investigation of officers’ qualifications, meaning that their ability to understand the potential illegality of their own actions was not tested. Thirdly, that there was no statement of truth by witnesses, as was common in tribunal investigations, though he acknowledged that Deloitte and the Council did not have police powers. Finally, he added that the suggestion put forward that a further investigation did not need to interview all tenants and residents, only those who had been listed on the database.

He concluded by stating that, in relation to the comments made in 5.9 of the report, local government officers should expect scrutiny when allegations of this nature were made.

Mr. Clarkson said that there was balance between cost and effort, and there would have been a very significant cost to an investigation of e-mail records. Deloitte’s approach had been to attempt to identify incidents that would act as a gateway to a wider and deeper investigation; their investigation had  ...  view the full minutes text for item 62.

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 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 3 and 7 of 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 exempt minutes of 10 January 2013 be agreed as a true and correct record.

RESOLVED THAT

The report be noted.

RESOLVED THAT

The report be noted.