Agenda item

This report presents the external auditor’s Interim Annual Audit Report concerning the Council’s arrangements for securing economy, efficiency and effectiveness in its use of resources (commonly known as “Value for Money” reporting). The report covers the financial years 2021/22 and 2022/23.

Sukvinder Kalsi (Strategic Director of Finance) introduced the report and explained that the Annual Audit Report (Value for money) 2021/22 and 2022/23 concerned Hammersmith and Fulham Council’s arrangements for securing economy, efficiency and effectiveness in its use of resources. He invited the Council’s External Auditor – Grant Thornton LLP (GT) to brief the Committee on its Interim Annual Auditor’s Report.

Paul Dossett (Key Audit Partner, GT) gave an overview of the report and highlighted their role in commenting on the local authority’s arrangements in respect of financial sustainability, governance, and improving economy, efficiency and effectiveness.  The report covered both 2021/22 and 2022/23, with differentiated comments and assessment presented separately for the Council’s General Fund Account and Housing Revenue Account (HRA). 

Alexa Ngini (Public Services Consulting Manager, GT) briefed members on each of the three areas for the General Fund Account in 2021/22 and 2022/23.  In terms of financial sustainability, the Council was able to deliver a stable financial outturn against the general fund revenue budget in both years and finishing them with underspends.  The Council’s strong budget management and its relatively healthy reserves balance made its medium-term position better than that of some local authorities.  The Auditor considered the current savings plan was generally achievable though required greater development to meet the medium-term gap.  On governance, the Council had appropriate risk management arrangement in place for both years and improvement recommendations had been made relating to risk management and the Audit Committee.  Lastly, the Council had adequate arrangements to safeguard value for money regarding performance management, procurement and partnership working.   

Alexa Ngini continued that significant weakness had been identified in Housing relating to the financial sustainability of the HRA.  It was also noted that the Housing Service at the Council had been underperforming, as demonstrated in the high number of maladministration findings, poor complaint-handling, and a lack of reasonable communication with the tenants.  She referred members to the key recommendations in the report.

Councillor Florian Chevoppe-Verdier sought elaboration about the strategy of maintaining a minimum HRA balance of £5 million, i.e., at about 6% of all rent/service charge income (page 24). Paul Dossett considered that the Council was currently managing a situation that was risky to a local authority’s governance.  He said that with a robust management of the General Fund Account, there was a need to keep the balance at a strong level to meet future demand.  He anticipated that future demand might happen in 2024 as exemplified by continuing inflation, spiking costs in the housing services for children and increasing homelessness across the sector.  Paul remarked that the Council was not alone as the whole spectrum of difficulties in housing management had posed real challenges for local authorities across the country, but the Council’s General Fund Account was in a relatively strong position compared to that in other councils that GT was working with.

Noting the response, Councillor Chevoppe-Verdier asked about the general trends on medium-term forecast that had set this Council apart from its counterparts.  Paul Dossett noted that most councils had drawn up its medium-term forecast to last for 3 to 4 years, with the level of savings predicted being quite high to ameliorate uncertainties beyond 2026/27.  Uncertainties included the increasing demand for housing services from homelessness and particularly children, and the income profile including central government funding support and other means of incomes.  Paul highlighted that what set H&F Council apart was its good track record of delivery and it had started the challenging plan from the right place.

Councillor David Morton highlighted the Council’s maladministration findings noted by the Housing Ombudsman and reductions to the HRA’s reserve since 2021.  He asked what could be done to improve the reserve position. 

Paul Dossett said that it was necessary to restore the financial health of HRA by maintaining and improving its performance, for example, by setting rental levels to the maximum allowable.  Sukvinder Kalsi added that the Council had reduced the structural deficit of HRA from £4.1 million in 2022/23 to £1.4 million in 2023/24 and planned to eradicate it totally when drawing up the HRA’s business plan for approval at the Cabinet meeting in February 2024.  Sukvinder further advised that the current balance of HRA reserve stood at a good position of about £10 million, with over-spending lowered from the expected £2.3 million to £1.5 million.  He considered a balance of reserve pitched at £5 million and up was at the right level unless provisions had been set aside to cover known arrears and liabilities.

Councillor Chevoppe-Verdier requested to put on record his view that while the Council might have lost out on rent receivable due to the decision not to raise rent by the cap allowable at the beginning of 2022/23 (page 23), he considered the decision helped residents cope with the rising cost of living. 

In terms of follow-up to previous recommendations, Councillor Ashok Patel was concerned that the recommendation of “the Council should develop a sustainable strategy for the HRA” was not addressed since it was raised in September 2022 (page 54).  Alexa Ngini advised that at the time of writing the report, GT was not aware about the Council’s action to address the problem of HRA’s structural deficit and hence had not documented any progress. She added that concerns surrounding the overall position of the HRA remained.

Noting that the Council had a 40-year financial business plan for the HRA (page 23), Councillor Patel asked about the plan and outcomes of examination, if any. Sukvinder Kalsi confirmed that the business plan had been considered by the Cabinet at its meeting in February 2022.  Since then, a lot of changes had happened to the sector, such as the introduction of the Social Regulations Act. He reiterated that the HRA’s business plan would be updated and reported to the Cabinet for consideration again in February 2024 when members would be briefed on its assumptions, outcomes, and achievements.     

Councillor Adrian Pascu-Tulbure referred to the under-performance of the Council’s Housing Service, its significant weakness and effort towards improving the service as set out on pages 25 to 27.  While noting that improvement would take time, he was concerned whether tangible changes could take effect as quickly as possible instead of taking two or three years for them to begin to materialise.

Jon Pickstone (Strategic Director of Economy) remarked that the issues facing the Housing department as well as those in many local authorities included national trends and involved intrinsic systems.  He said that it might take some time to achieve a full recovery of the Housing Service. The department had worked hard to improve the performance of the repairs service, for example, there were now fewer outstanding repairs jobs, much less outstanding damp and mould cases and no overdue Stage 1 or 2 complaints related to repairs since last September.  This had been achieved by coordinated efforts among officers from the Finance and Housing departments. He added that the Housing Service would work with local firms to deal with disrepairs and void cases in the coming months. 

Sukvinder Kalsi remarked that the improvements were made possible after implementing a number of governance changes to the Housing Service.  A Housing Task Force chaired by the Chief Executive was set up to meet monthly to discuss improvement performance planning.  He also noted the Budget Board, and other transformation and improvement boards looking at each aspect of the service.  The new Director of Housing had been appointed in April and extra capacity was brought to help in this difficult period. The team had also worked closely with the regulators like the Housing Ombudsman.  He emphasised that incremental changes took time and the local authority would expedite the process and hope to see more progress over the next 12 months.

Councillor Chevoppe-Verdier noted that the Council was reforming its housing repairs service, including successfully exiting an underfunded 10-year maintenance contract in 2019 (page 25), and sought elaboration. Sukvinder Kalsi said that the Council had exercised strong contractual management for repairs service by terminating existing under-performed contractors to allow others to come forward and provide better quality of repairs service.  Jon Pickstone added that the Council had learnt not to be overly reliant on a small number of large firms.  The current diverse model led by the Housing Task Force was better for the local economy and the Council’s risk, and in terms of the Council’s responsiveness and management efficiency.  

Councillor Patel expressed concern about the strong language used by the Housing Ombudsman who found the Council had “the highest number of maladministration findings for damp and mould” and had “the third highest number of complaint handling failure determinations in comparison to other London Boroughs” (page 25).  Sukvinder Kalsi highlighted the context that the lack of central government funding for some of the investments the Council needed to comply with the national building safety standards had led to some of the Housing Ombudsman’s findings.  He said that a lot of improvements had been made to address the concerns as detailed in the report for item 7 on the agenda. He expected that ’s performance servicing 12,000 tenants and 4,000 leaseholders would be improved and reflected in the Housing Ombudsman’s next report to be released in late December.

Jon Pickstone added that several external factors had also contributed to the repairs backlog, including the lack of labour due to COVID-19 pandemic and the associated lockdowns. Similarly, the Housing Ombudsman also experienced a backlog for about 18 months and the complaints did not reflect the current policy.  It was hoped that the introduction of the customer and complaint resolution services would help reduce the number of cases escalating to the Housing Ombudsman while improvements in repairs service would help drive out the complaints. The Council had apologised and offered compensation for the past cases and would work closely with the Housing Ombudsman in observing their code and advice. 

Councillor Pascu-Tulbure asked about the assumptions for potential increase of council tax and other financial commitments such as payroll for the next couple of years.  Paul Dossett advised that the External Auditor relied on the Council’s own financial plan and assumptions that worked around the savings required to undertake the analysis and assessment. Sukvinder Kalsi noted that the Council always made prudent assumptions and subject to further review pursuant to the central government’s funding to be made known by late December, there were assumptions of 3% increase for prices and 4% for general price inflation. 

The Chair noted that information at the CIPFA Report was up to 31 March 2023, and asked if it was due to ongoing audit issues with the local authorities if no updated figures further to that date was available. Alexa Ngini said due to many local authorities failing to produce their accounts in time, it was the latest CIPFA Report.  She said that GT was happy to provide up-to-date CIPFA report once available.

ACTION: Grant Thorton/ Sukvinder Kalsi/ Chris Harris  

Councillor Patel sought elaboration about the recommendation of the separation of executive roles and Audit Committee membership and made it the rule that a period of two years should elapse before a councillor who previously held a senior policy role joined the Audit Committee in line with CIPFA’s guidance Audit Committees: Practical Guidance for Local Authorities and Police (2022) (page 47). Alexa Ngini noted it represented the best practice recommended by CIPFA to achieve gold star standard and greater independence for the Audit Committee. 

Councillor Chevoppe-Verdier noted that the Council’s gross external debt was towards the lower risk end of the scale as an indicator of financial stress, and its debt position was not considered to be a significant risk at the time of writing (page 36).  He asked for the national picture in respect of debt position. Paul Dossett advised that in terms of the London position, H&F Council’s external debt was in the lower risk end which was partly due to its prudent approach in deploying resources, such as capital grants assigned to support capital works.  Moreover, the Council had invested in properties in proportion to its size.  As regards the national picture, Paul said that external debt was one of the key drivers behind Section 114 notice served by some local authorities to indicate the authority was about to incur expenditure that was unlawful according to the Local Government Finance Act 1988. He confirmed that the Council had a good track record and stayed nowhere near such a risk.

The Chair commended finance officers for their diligent management of the Council’s financial resources and delivering a balanced budget as many councils across the country were facing serious financial challenges.  

RESOLVED

That the Committee agreed to note the contents of the “Interim Annual Auditor’s Report on Hammersmith and Fulham Council 2021/22 and 2022/23” from Grant Thornton LLP at Appendix 1.