Agenda item

Annual Audit Report (Value for Money) 2023/24

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 2023/24.

Minutes:

Paul Dossett (Key Audit Partner, Grant Thorton LLP) introduced the Annual Audit Report (AAR) 2023/24 which was the auditor’s commentary relating to the Council’s arrangements for securing economy, efficiency and effectiveness in its use of resources (commonly known as “value for money” arrangements). He recalled that in presenting the same report for 2022/23 in last November, he had commented on the Council’s arrangements as being strong with some challenges including the regulatory challenges of the Housing Ombudsman and the financial sustainability of the Housing Revenue Account (HRA) which was operating in the context of cost of living crisis, inflations, the war in Ukraine, covid and the new regulatory requirements driven by the Grenfell incident and damp & mould issues across the country.  While these issues could not be resolved overnight, significant changes/actions had since been made/taken to address them and put the HRA back on a more sustainable footing.

 

Paul Dossett remarked that the financial sustainability of the General Fund and the governance arrangements of the Council were strong. In terms of economy efficiency and effectiveness, the Council ran some good services and achieved good regulator scores. That was why the commentary on financial sustainability and housing performance were both downgraded from red to amber. It was expected to see the measures taken to address those issues would be fully in place beyond 2023/24 to bring about further improvements in 2024/25. Paul highlighted that among all the councils that he had worked with, LBHF had probably done one of the best recoveries from a poor position and it was moving in the right direction on top of the issues.

 

Noting that the direction of travel for three out of the four issues listed under the overall summary of value for money assessment of the Council’s arrangements (p. 362) were upward, Councillor Florian Chevoppe-Verdier asked whether the trend would continue at the next audit.

 

In response, Paul Dossett advised that the challenges on HRA was first raised in July 2022 and the progress of work ever since had been positive and moving in that direction. When the same report was delivered by this time next year, he expected that aspect would move from amber to green.

 

The Chair noted that the auditor had recommended the Council to include scenario planning as part of developing the annual budget. Given the market shocks in the past few years such as Brexit, mini-budget, the war in Ukraine which were unique scenarios with unique challenges, he was concerned how scenario planning could be embedded in developing the budget.

 

Paul Dossett said that councils used to develop the medium-term financial plan based on the information currently available including demand pressures, inflation forecasts, ongoing impact of the events mentioned earlier. Scenario planning was to adjust information e.g. revising the rate of forecast inflation, or having spiking demand for children’s services, and then assess the scale of challenges reflected in the plan. It might also help push down particular path in terms of revenue raising or savings. Paul stressed that it was more about the medium-term financial plan rather than the whole year’s budget.

 

The Chair referred to the risk register which monitored and tracked risks over time and asked if scenario planning could be incorporated within the existing exercise of the risk register. Paul Dossett considered it might be a robust bottom-up approach to do so as the risk register could crystallise the risks in scenario planning and put a financial value against various ranges that might have material impact on the service provided. The outcomes needed to be challenged and reviewed by the Finance team colleagues.

 

Sukvinder Kalsi (Executive Director of Finance & Corporate Services) outlined the Finance office’s existing practice of scenario planning and risk analysis in budget development. Going forward, the practice would be formalised considering the best- and the worst-case scenarios in assessing the impacts.

 

In response to Councillor Adrain Pascu-Tulbure’s enquiry about the financial performance of the HRA, Councillor Rowan Ree (Cabinet Member for Finance and Reform) noted that during the current budget setting process, efforts had been made to deliver a 10-year business plan for the HRA that sought to build and maintain a stronger reserve now that the structural deficit had been eliminated. Sukvinder Kalsi added that the previous deficit balance in the HRA was an arrangement put in place as part of the recovery plan. As the Council was coming out of the plan, the balance could be maintained at the level of £5 million (5% of the HRA turnover) which should be sufficient to accommodate all major financial risks envisaged.

 

Sukvinder Kalsi took the opportunity to express his appreciation to the support of Grant Thornton in auditing the Council’s enormously complicated accounts comprising assets over £2 billion plus a pension fund of £1.2 billion. He thanked Paul and his team for their diligence and thorough reviews and the auditor’s unmodified statement of the accounts gave residents assurances that the Council’s finances were on a solid footing. Sukvinder said he was pleased to note that the housing service had moved from red to amber rating and expected to see the service progress in that direction. He remarked that the Council’s finance team would continue to work to their utmost for the sustainable future such that residents would continue to be provided with the excellent services they deserved. Sharing the sentiment, Councillor Ree added he was thankful to everyone who had done a lot of work on the HRA and made its turnaround possible.

 

Echoing their views, Sharon Lea (Chief Executive) noted the professional finance team had worked very well with the external auditor and exchanged views with them about the challenges in housing in an open and transparent manner. It was also challenging to the officers to work for an ambitious Administration who were ruthlessly financially efficient. With their dedication and collaborative efforts with colleagues in internal audit and housing teams, the finance team had proudly concluded the Council’s accounts for the past three years. Their excellent work was reflected in the AAR 2023/24 and Paul's earlier compliments. She expressed a heartfelt thanks to Paul and his team.

 

RESOLVED

 

That the Committee agreed to note the contents of the “Auditor’s Annual Report for the Year Ended March 2024” from Grant Thornton LLP (Appendix 1).

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