Agenda item

This report presents the London Borough of Hammersmith & Fulham’s 2022/23 Statement of Accounts, including the Pension Fund Accounts and Annual Governance Statement for approval.

Sukvinder Kalsi (Strategic Director of Finance) presented the report which presented the 2022/23 Statement of Accounts of London Borough of Hammersmith and Fulham (LBHF), including the Pension Fund Accounts and Annual Governance Statement for approval.

Andy Conlan (Senior Manager, Grant Thornton) briefed members that the Audit Findings Report (ISA260) (Main Financial Statements and LBHF Pension Fund) 2022/23 (Appendix 2) had been completed during October 2023 through to February 2024.  While it was a challenge for both sides to work collaboratively on the audits for both 2021/22 and 2022/23 concurrently, it had allowed the latter audits to be substantially completed more efficiently. It was expected the unmodified opinion would be signed off in line with the Government timetable by end of March 2024. Having caught up all the audits to the current year, the External Auditor would start planning for the 2023/24 audits shortly. Andy referred members to “Follow up to prior year recommendations” on pages 193 to 195 and “Audit Adjustments” on pages 196 to 200.  He noted that given the concurrent preparation of the statements, some of the prior year recommendations were ongoing in the 2022/23 financial year.  He also noted that there were a small number of unadjusted misstatements and minor misclassification and disclosure amendments. The External Auditor considered it was reasonable to leave those issues unadjusted as they were below materiality.

Referring to the “Fees and non-audit services” on pages 201 to 202, Councillor Ashok Patel sought explanation on the difference between the proposed and final fees. Paul Dossett (Key Audit Partner, Grant Thornton) highlighted the complexity of the process in setting the audit fee for local governments.  He said that the fees in this report reflected the five-year contract made by the Public Sector Audit Appointments (PSAA) for the period between 2018/19 and 2022/23. The fee schedule therein comprised a base scale fee plus additional charges arising from new audit requirements as a result of regulation or changes in auditing standards.  Paul noted that according to the PSAA, the contract from 2023/24 onwards had a new set of scale fees allowing some degree of resilience to avoid major deviations from those in the next contract period.

In this connection, the Chair remarked that following the exit of certain market players, the number of auditors who possessed the specialist skills to undertake audits for local governments became very limited. He understood that a vast majority of councils had subscribed to PSAA’s service and those that had not did struggle to meet their statutory obligations for audits. 

Echoing the Chair’s views, Councillor Florian Chevoppe-Verdier appreciated the difficulties due to the complicated auditing process, the increasing reporting requirements and diversity in the auditing market. He considered that transparency and democracy came with a cost. Separately, he was pleased to note the Council’s performance from the Statement of Accounts 2022/23.  While some councils had gone bankrupt a year after COVID, this Council, despite operating with a 10% funding cut, had managed to stay in positive financial situations and continue its policies to provide its residents free home care and free school meals. 

Sukvinder Kalsi advised that the Council was an immensely complex organisation with enormous capital spending and revenue.  He reassured the Committee that according to the independent review of the External Auditor on H&F’s financial affairs, the Council had done a good job outperforming many other councils. As regards the Audit fee, as he recollected and confirmed by David Hughes, the final fees were about 50% in cash terms as compared to that some 5 to 10 years ago. While there might be a slight uplift following the PSAA’s latest arrangements, he considered it was a worthwhile investment as the Council’s residents and stakeholders were assured that the Council was well managed financially.

Recalling that some councils had experienced substantial delays in auditing their accounts, the Chair asked about the present position of the Council in comparison with local authorities overall.  Paul Dossett (Key Audit Partner, Grant Thornton) remarked that by signing off the 2022/23 audits before the end of March, this Council sat comfortably on the top half. He then briefed members about the situation of council audits by the backstop deadline on 30 September 2024.

Anticipating the External Auditor’s busy schedule over the next few months, Councillor Rowan Ree (Cabinet Member for Finance and Reform) was keen to ensure the signing off of the 2022/23 audits by the end of March. Paul Dossett highlighted the Grant Thornton’s commitment to do so.  He said the H&F’s 2022/23 audit work had been substantially completed, pending clearance of the final set of queries. Paul noted it was also Grant Thornton’s intention to complete H&F’s 2023/24 audits within this year. 

Noting the central government was discharging single-year financial settlement for local authorities, Councillor Chevoppe-Verdier was concerned about the long-term impact of such practice. Councillor Ree highlighted the chaotic ways of the central government in dispensing the financial settlement which had made financial planning a lot harder. In addressing the single-year financial settlement which was the sixth year in a row, the Council had set the budgets by making small conservative assumptions and building in high levels of policy contingencies based on high inflation rate. Worst case and other scenarios had been worked out in anticipation of the central government’s funding levels.  Councillor Ree remarked that the practice of single-year financial settlements was one of the factors that had made the Council’s financial management a lot harder.  He hoped that the practice would be reviewed after the next election.  

Councillor Adrian Pascu-Tulbure referred to the Council’s key risks on page 30 and queried why housing was not one of the highest-level risks.  Sukvinder Kalsi advised that details of the Housing Revenue Account (HRA) were covered under the Annual Governance Statement. He noted that HRA had been under financial stress during 2022/23 but the Council had done recovery and mitigation actions to improve its position. The structural deficit of HRA of £4.1 million at the start of 2022/23 had been reduced to £1.4 million in 2023/24 and eliminated entirely going into 2024/25. To keep the HRA in a stronger and more stable position, a minimum balance of £5 million would be maintained. Councillor Ree appreciated the efforts taken to stabilise the HRA.  Following the publication of its 10-year business plan, it was now clear how the HRA reserves would grow and become stronger over time while spending the monies therein wherever needed.  He welcomed future audits on the HRA.

Councillor Pascu-Tulbure sought information on income figures from fines, e.g. parking and clean air neighbourhood. Sukvinder Kalsi highlighted that by nature the Statement of Accounts summarised the income and expenditure accounts on a balanced sheet and record reserve movements.  He undertook to provide the requested information which fell under the Environment Department. 

ACTION: Sukvinder Kalsi

Noting that the debts enlisted under “Debtors” on page 70 involved reasonable amount of money, Councillor Patel was keen to ensure that actions were being undertaken to recover them. Sukvinder Kalsi assured the Committee that the Council had been taking active steps through the Debt Board to manage and improve the overall position of the debts.  As the Chair of the Debt Board, James Newman (Assistant Director of Finance) noted the Board would continue to review different types of debts notably business rates and council tax as well as the most efficient ways and procedures to collect them. It was reckoned that the more debts were collected, the less need to identify savings to cover the bad debts.

Councillor Ree considered it was very important for the Council to collect council tax, business rates and service charges timely to pay off contract sums. However, in the face of economic downturn, the Council was keen to ensure that people were not put under unnecessary financial hardship when it came to paying for the services they had received.  They must pay but it could take a bit more time to do so. 

Councillor Patel referred to Aviva Investors which shared the same “reasonable assurance” as other fund managers on this 2022/23 audits report (page 235). He understood that during 2023/24, the Council had decided to redeem the units in the Aviva Fund and asked about the progress. Sukvinder Kalsi and Councillor Chevoppe-Verdier noted that the advisor of the Pension Fund Committee (PFC), Deloitte (now renamed as Isio) had advised the Committee to disinvest from the Aviva Fund.  Unfortunately, Aviva failed to sell a number of assets and the H&F Pension Fund had only been able to recover some of the investment. At the last PFC meeting attended by Aviva directors, it was agreed that the outstanding amount would be payable by the end of June this year.  Councillor Chevoppe-Verdier said the PFC was not happy about the need to continue paying the management fee and would deal with the matter strictly.

Councillor Pascu-Tulbure appreciated the transparency on officers’ remuneration on pages 80 and 81.  Noting that some non-senior officers were earning serious money with remuneration band in the range of up to £165,000 - £169,000, he was concerned about the job descriptions of these staff.  Sukvinder Kalsi noted that the Statement had complied with the statutory reporting requirements by disclosing the remuneration packages for senior staff and set out some remuneration bands for officers across the Council from £50,000 onwards.  James Newman added that senior staff included the Council’s Chief Executive, Statutory Chief Officers and members of the Strategic Leadership Team (i.e. those reporting to the Chief Executive).

Councillor Ree expressed thanks to Grant Thornton for its audit reports which offered reassurance to the Council’s residents and business partners that the Council was operating in a stable financial position. Councillors and officers could also take the opportunity to review and improve the service delivery particularly at a time of funding cut.

RESOLVED

That the Committee agreed

1.     To approve the 2022/23 Annual Governance Statement which was included in the Statement of Accounts (Appendix 1).

2.     To approve the Statement of Accounts for 2022/23, including the Pension Fund Accounts (Appendix 1).

3.     To note the content of the external auditor’s ‘Audit Findings Report’ (ISA260), including the auditor’s findings, recommendations and the Council’s response to those recommendations (Appendix 2).

4.     To approve the 2022/23 management representation letters (Appendices 3 and 4).

5.     To approve the Pension Fund Annual Report 2022/23 (Appendix 5).

6.     To note that the accounts remain ‘unaudited’ until final sign-off by the external auditor.

7.     To delegate authority to the Chair of the Audit Committee, in consultation with the Director of Finance to approve any further adjustments to Appendices 1, 2, 3, 4 and 5 which might be required as part of the completion of the audit work.