To authorise the Chair to sign the Minutes of the meeting of the Audit and Standards Committee held on the 27 July 2022 as a correct record of the proceedings.

The Chair was authorised to sign the Minutes of the meeting of the Audit and Standards Committee held on 27 July 2022 as a correct record of the proceedings.

An apology for absence was received from Councillor K.M. Harmer, Chair of Council.

To receive any disclosure by Members of personal and disclosable pecuniary interests in matters on the agenda, the nature of any interest and whether the Member regards the personal interest as prejudicial under the terms of the Code of Conduct.  Members are reminded of the need to repeat their declaration immediately prior to the commencement of the item in question.

Declarations of interest were made by Councillors in the Minutes as indicated below:

Barnes, J                     Agenda Item 6 – Personal interest as Vice-Chair and Company Executive Director for Rother DC Housing Company Ltd and Vice-Chair of Etchingham Trust for Sports and Recreation.

Courtel                        Agenda Item 6 – Personal Interest as the Council’s representative for the Hastings Furniture Service.

Drayson                       Agenda Item 6 – Personal interest as committee member of Light Up Bexhill.

Patrick Farmer            Agenda Item 6 – Personal interest as Trustee and Treasurer of the Hastings and Rother Mediation Service.

Langlands                   Agenda Item 6 – Personal interest as Company Executive Director for Rother DC Housing Company Ltd.

Madeley                      Agenda Item 6 – Personal interest as committee member of Light Up Bexhill.

Thomas                       Agenda Item 6 – Personal interest as Chair and Company Executive Director for Rother DC Housing Company Ltd.

The Audit Manager led Members through the Risk Management Update report which provided a position update on risk management processes, the key strategic risks currently facing the Council and outlined some of the recent improvements made to the risk management process.

The Audit Manager, in his role as Risk Management Coordinator, was currently responsible for facilitating all strategic risk management activity including maintaining the Risk Management Policy and collating and reporting on updates to the Corporate Risk Register. The responsibility for identifying and managing risks, however, remained with Senior Management.

Following on from their Enterprise Risk Management, Business Continuity and Disaster Recovery Review in February 2022, the Council’s insurance provider, Zurich, were engaged to carry out further work to help improve the Council’s risk management processes, by means of feedback surveys and face-to-face workshops.  From this work, the Audit Manager was able to compile a new Corporate Risk Register, at Appendix B to the report, and Risk Management Policy for Member’s approval at Appendix A to the report.

Grant Thornton, the Council’s external auditor, also made a recommendation in respect of risk management  in their Annual Audit Report 2021/22 reported to the Committee in June 2022. The shortcomings of the existing risk management processes were acknowledged in the management response and Members noted that several of the points raised had been addressed as part of the Council’s work with Zurich. All outstanding items would be incorporated into further planned improvements.

The Council’s Risk Management Policy was last reviewed in February 2020 and had been completely revised to reflect the changes made to the risk management process, attached at Appendix A to the report for Members’ approval and referral to full Council for adoption.  The most significant changes made to the previous policy were the inclusion of sections outlining the Council’s risk management methodology and how it was proposed to define the Council’s risk appetite.

The Corporate Management Team (CMT) had recently reviewed and updated the new Corporate Risk Register produced as a result of the Risk Management Refresh exercise, shown at Appendix B to the report.  Improvements made were outlined in the report for Members’ information.

Heads of Service/Service Managers should maintain a risk register for key operational risks within their service area, but presently there was no standard template for a service based risk register nor any formal review mechanism for ensuring that risk registers were kept and regularly reviewed. The Deputy Chief Executive was therefore looking to incorporate the requirement for maintaining risk registers into the service planning process, to be introduced in 2023/24.

Members were given the opportunity to ask questions and the following points were noted during the discussions:

•           Members raised concerns that certain risks, e.g. affordable homes and temporary accommodation that could be mitigated, had been merged together with risks that could not, e.g. land supply;

•           not using technology was also a risk, however the Council did not intend to be at the forefront of testing new technology;

•           Members noted that the  ...  view the full minutes text for item AS22/27.

Members were led through the report of the External Auditor by Omer Awais, Grant Thornton, on the progress in delivering Grant Thornton’s responsibilities to the Council, in addition to a summary of emerging national issues and developments relevant to the Council.

            The following points were highlighted for Members’ attention:

•           work on the 2021/22 audit was planned to commence from October 2022, to be reported to the Committee in December 2022;

•           the Auditor’s Annual Report deadline had been extended to no more than three months after the date of the opinion on the financial statements;

•           following the issuing of the 2020/21 audit opinion on 20 May 2022, the audit fee for that year had been finalised as set out in the report;

•           the Department for Levelling Up, Housing and Communities published its response to the local audit consultation, which confirmed plans to establish a new regulator for local audit within a new, simplified local audit framework; and

•           the updated Prudential Code published by CIPFA in December 2021 removed the ‘advance of need’ terminology and emphasised the legislative basis for borrowing, namely that a local authority could borrow and invest for any legislative function and/or for the prudent management of their financial affairs.

RESOLVED: That the report be noted.

Members were led through the report of the Principal Accountant that discussed the main issues affecting the Council’s draft Statement of Accounts 2021/22 and provided a commentary on the core financial statements.  At the current time, the Council’s external auditors, Grant Thornton, were yet to commence their  audit of the accounts for 2021/22 but would report on the outcome of their work later in the year in line with the revised national timescales, if possible. The draft accounts included the Annual Governance Statement as amended and approved by the Committee at its meeting in July 2022

The following salient points were highlighted for Members’ attention:

•           The Code of Practice had required no major changes in the presentation of the accounts for this year.

•           The Movement in Reserves statement showed the movement in the year on the different reserves held by the Council (analysed between ‘usable’ and unusable). The surplus of £0.688m (£1.174m deficit in 2020-21) on the provision of services line shows the true economic cost of providing the authority’s services. 

•           The net change of £3.856m before transfers from Earmarked Reserves line shows the statutory General Fund Balance before any discretionary transfers from earmarked reserves was made by the Council.

•           The Balance Sheet showed the balances and reserves at the Council’s disposal, its long-term indebtedness, the net current assets employed in its operations and summarised information on the fixed assets held. The net worth of the Council has increased by £16.127m,  largely due to a decrease in the Pension Fund liability (£11.3m), decrease in the Collection Fund deficit (£2.3m), increase in the value of investment in property funds (£1.3m) and increases in the capital grants in the usable reserves (£1.4m).

•           The Pension Fund liability of £11.3m was a long-term financial assessment of a possible shortfall based on its current performance and therefore no immediate action was required. 

•           Overall, the Collection Fund balance at year end was a deficit of £4.094m; this balance was made up of both Council Tax and Business Rates.  For Council Tax, the Fund was in surplus by £0.96m, with East Sussex County Council entitled to the majority of this amount.  For Business Rates, the Fund was in deficit of £5.054m with the Government receiving the highest amount followed by this Council. The deficit arose mainly due to the amount of business rate reliefs announced by Central Government relating to 2021/22, which would have been offset by additional section 31 grant payments to the Council.

The Balance Sheet showed that, overall, the financial position of the Authority remained sound with an adequate amount of reserves in place to meet short term needs. The COVID-19 pandemic had exacerbated the financial pressure on the Council both in 2020/21 and 2021/22 and the worsening economic climate was likely to add to the pressures and affect reserves balances. It was therefore essential that in the medium term, the Council continued to deliver the target savings set out in the Medium-Term Financial Plan as well as  ...  view the full minutes text for item AS22/29.

The Audit Manager led Members through the internal audit report to 30 June 2022 that gave details of audit matters and any emerging issues, not only in relation to audit but risk management and corporate governance. 

Two audit reports were issued in the quarter and an overview of the findings arising from each was given in the Executive Summaries in Appendix A to the report.  Both audits only provided limited assurance on the overall governance arrangements and the reasons for this were outlined in the report.

Appendix B to the report updated Members on progress made on implementing the audit recommendations reported at the previous meetings.  Only two long outstanding recommendations remained and whilst progress continued to be made to resolve the Procurement recommendation, no further progress had been reported during the quarter on ICT Governance.

Good progress continued to be made on the 2021/22 recommendations, with over three quarters of the issues raised resolved, including one high risk recommendation made in quarter 4.

The Audit Manager had previously reported that the Public Sector Internal Audit Standards required all Internal Audit service providers to undergo an external quality assessment every five years. The Rother District Council (RDC) Internal Audit team’s last external assessment was completed in April 2017, so another review was now due.  The Audit Manager had been in contact with audit colleagues from Hastings, Lewes & Eastbourne and Wealden councils to discuss the possibility of conducting reciprocal peer reviews, similar to those carried out in 2017/18 and all had agreed to participate in such an arrangement.  Each council would be reviewed by a team of two, with one auditor acting as the principal (or lead) reviewer and the other assisting in a supporting role only, to reduce the potential for conflicts of interest due to one of the team also being assessed by a council that they themselves had reviewed.

The RDC Internal Audit team was due to be reviewed first, and this assessment would be undertaken by the Chief Internal Auditors at Lewes & Eastbourne and Hastings during the week commencing 23 January 2023.  The Audit Manager hoped to be able to report the results of the completed review at the Committee’s meeting in March 2023.

Members were given the opportunity to ask questions and the following points were noted during the discussions:

•           the Capital Programme Audit had been at the request of the Chief Finance Officer (CFO) due to issues around monitoring. Major steps had already been taken in order to address issues;

•           the Procurement Audit highlighted the need for greater awareness of compliance with the procedure rules, and training for staff and Members was currently being discussed with the East Sussex Procurement Hub;

•           a culture shift was required in respect of issues identified in both audits.  The Corporate Management Team (CMT) were now more involved than in the past, which would help to ensure issues were fully addressed;

•           Members raised concerns that the reciprocal arrangement for an external review of the Internal Audit  ...  view the full minutes text for item AS22/30.

The Council’s Investment Strategy required regular reports to be presented to the Audit and Standards Committee on the Council’s treasury management activities. In managing these, the Council had implemented the Department of Levelling Up, Housing and Communities investment guidance and followed the Chartered Institute of Public Finance and Accountancy’s Code of Practice on Treasury Management.

The investment activity to date conformed to the approved strategy and the Council had had no liquidity difficulties. Investment activity was also reported to Members through the monthly Members’ Bulletin.  The report focused on the financial period ending 30 September 2022 and was based on the latest available data.

The report provided an update on a number of areas as follows:

•           As at 30 September 2022, the Council’s total investments were about £38m with £10m invested in short term call accounts, £6m in a fixed term deposit with a local authority and £8m in Property Funds. The remaining £14m was held in the General account, (a significant element of which related to cash owed to public bodies, e.g. council tax precepts, shares of business rates).

•           The total income from investments was forecast at £600,000 in 2022/23, mainly achieved from the Property Funds, yielding returns of between 3.06% and 3.68%. This might be affected by subsequent interest rate changes.

•           Due to the recent increases in interest rates, higher than expected returns (£190,000) were predicted to be gained from call accounts with a further £68,000 due on the maturity of a loan to a local authority in February 2023.  The investment portfolio and Property Fund values were detailed in Appendix A to the report.

•           The pandemic again slowed the pace of programme delivery in 2021/22 however, it had already accelerated in the first half of 2022/23 and was expected to continue doing so throughout the year.  Members noted that the capital programme would again be reviewed for affordability as part of the Medium-Term Financial Planning process.

•           The value of outstanding loans as at 30 September 2022 was £32.152m, well below the Council’s forecast CFR of £85.657m; the difference would decrease as the programme delivery accelerated and the Council’s borrowing requirement increased.

•           The ratio of Net Financing Costs (NFC) to the Net Revenue Stream was predicted to be 5.55% by the end of the financial year, which was 5.83% lower than the original budget. This was due to the delay in the capital programme delivery and the additional investment income achieved from the Property Funds and interest on call accounts, which reduced the NFC. 

•           The budget for rental income from all investment properties was £1,969,165; the Quarter 1 forecast income was £2,602,626.  The additional Non-Property Investment Strategy (PIS) rent income shown in the report was due to the rental income from the second floor of Amherst Road.  The additional PIS rent income was due to the purchase of Buckhurst Place.  Both leases were agreed after Council had approved its budget. Appendix D to the report gave more detail on those properties  ...  view the full minutes text for item AS22/31.

Consideration was given to the Work Programme which contained details of the reports to be considered by the Audit and Standards Committee for the 2022/23 municipal year and the following additions were made:

•           Update and the management responses to issues raised in the Procurement and Capital Programme Audits – 5 December 2022 and 20 March 2023.

RESOLVED: That the Work Programme attached at Appendix A be approved, as amended.