The Audit Committee of Tower Hamlets Council met on Thursday 29 July 2021 to discuss the progress of outstanding accounts, the finance improvement plan, treasury management, internal audit strategy and annual reports, risk management, and the council's code of corporate governance. Key decisions included noting the progress on the finance improvement plan, approving the treasury management outturn report, and agreeing to the internal audit strategy and annual plan.

Outstanding Accounts and Finance Improvement Programme

The committee received an update on the significant delays in completing the 2018-19 and 2019-20 accounts. Kevin Bartle, Interim Corporate Director of Resources and Section 151 Officer, expressed regret that these accounts could not be presented as hoped, citing a substantial volume of unresolved queries and historical record issues. The latest forecast aims to present these accounts, along with the 2020-21 accounts, at the next committee meeting on October 7th. A significant challenge remains with outstanding audit certificates for the 2016-17 and 2017-18 financial years from previous auditors, KPMG. This technicality means that KPMG is statutorily required to consider any new matters that could have affected their original opinion. Two options are being considered: treating the adjustments as prior year adjustments to the 18-19 accounts, or restating the 16-17 and 17-18 accounts, which would require committee approval of revised versions. Officers are seeking specialist advice to determine the least worst option.

Marion Kelly, Interim Programme Director for Finance Improvement, presented the progress on the Finance Improvement Plan, which was commissioned following issues identified in the 18-19 accounts. Phase one of the plan, which focused on improvements impacting the production of the 2021 accounts, has been completed. Key achievements include a strengthened internal governance structure with corporate leadership involvement, a reconfigured accounts production plan with named reviewers, and re-engineered processes for asset valuation, the community infrastructure levy, leaseholders, and school payments. Phase two of the plan is now underway, addressing areas such as the realignment of council budgets, enhancement of the TechForge system, and further reviews of control accounts and reconciliations. The plan also includes a significant workstream to realign all council budgets cost centre by cost centre. The consideration of an Enterprise Resource Planning (ERP) system has been deferred due to capacity issues, but a health check of the current Agresso system will be conducted. The completion of phase two is targeted for November.

Treasury Management Outturn Report 2020-21

Allister Bannin, Head of Strategic and Corporate Finance, presented the Treasury Management Outturn Report for 2020-21. The report confirmed that all approved limits and prudential indicators were complied with. The council had £274 million invested as of March 31, 2021, generating £2.4 million in investment income, which was slightly above the revised budget but significantly lower than the previous year due to the pandemic's impact on the economy and the low Bank of England base rate. Pooled fund investments had recovered to their purchase price of £76 million. The council's total return on investments was higher than the benchmark group of local authorities, and the average credit rating of A-plus was above the minimum target of A-minus. No new external borrowing was undertaken, and £755,000 was repaid, reducing external borrowing to £71.5 million. Councillor David Edgar noted the council's higher total returns compared to similar authorities, attributing it partly to longer-term investments. He also inquired about potential interaction with the UK Infrastructure Bank and the management of liquidity targets. Councillor Andrew Wood raised concerns about a £17.5 million loan from banks at 4.34% interest, questioning the rate compared to income from local authority loans. Kevin Bartle clarified that local authorities do not go bankrupt and that inter-local authority loans are considered safe, with the Slough loan due for repayment soon. He explained that early borrowing decisions were made based on advice at the time, and penalties for early repayment of existing loans are often punitive.

Internal Audit Strategy and Annual Reports

Paul Rock, Head of Internal Audit, Anti-Fraud and Risk, presented the Internal Audit Strategy and Annual Plan for 2021-22. The strategy includes supporting management in mapping assurance sources against corporate risks, improving the sharing of good practice, and integrating fraud prevention activities. The annual plan, developed through consultation and risk assessment, is divided into priority one and priority two audits due to current resource levels and vacancies. The plan is a living document subject to review and adjustment. Councillor Edgar welcomed the fraud prevention officer role, seeing it as a proactive measure. Questions were raised about the process for filling vacancies, with Mr. Rock explaining the restructure and the intention to advertise in August.

Mr. Rock also presented the Internal Audit Annual Report for 2021. His overall opinion on governance, risk management, and control remained limited due to significant issues with the statement of accounts. However, he highlighted improvements in management's responsiveness to agreed actions, increasing risk maturity, and positive outcomes from the Investors in People assessment. No internal audit assignments were rated as no assurance for the third consecutive year, and for the first time, substantial assurance was given for treasury management. Mr. Rock expressed hope for a move towards reasonable assurance in the next year's opinion. Councillor Edgar inquired about the key factors that would allow for a higher level of assurance, with Mr. Rock citing the resolution of the statement of accounts, a balance of reasonable or substantial assurance opinions, and positive external assurance provider ratings. Councillor Wood agreed with the limited assurance finding, referencing chart two showing a year-on-year increase in limited findings.

A limited assurance opinion was also given on the group schools contract monitoring. James Thomas, Corporate Director for Children and Culture, accepted the findings and outlined plans for immediate implementation or implementation within three months. Terry Bryan, Service Head for People Access and School Sufficiency, highlighted issues with policy and procedures, contract management functions, and the need for updated roles and responsibilities. He noted challenges in PFI contracts where contractors may be willing to incur financial penalties rather than complete work promptly. Ben Jeffrey, PFI Client Efforts, provided details on health and safety actions, including window safety devices and Legionella management, assuring the committee that these did not pose immediate risks to children and staff. He also discussed the upcoming end-of-life arrangements for the 25-year PFI contract.

Risk Management and Corporate Risk Register

Paul Rock presented the Annual Risk Report for 2020-21, noting a maturing approach to risk management but also room for improvement. The report includes an action plan for continuous improvement. Councillor Edgar and Charlotte Webster (Independent Person) suggested an offline discussion or brainstorm event for committee members to identify potential risks. Mr. Rock confirmed that 44% of risks were overdue for review by the risk owner, often due to the risk becoming out of date or needing reassignment of owners.

James Thomas presented the Corporate Risk Register and the Children's Directorate Risk Register. He discussed risk 00016, the risk of child death, acknowledging that it cannot be eliminated but can be reduced. He highlighted existing mitigations, including the Children's Social Care Improvement Board, management information systems, and multi-agency working, and outlined strengthened measures implemented in the last year, such as monthly quality auditing and external peer scrutiny on the improvement board. Councillor Wood raised concerns about poor pupil placement planning, noting a significant drop in pupil intake compared to the London average, attributed to demographic planning complexities exacerbated by Brexit and COVID-19. Councillor Edgar inquired about the assurance level from a recent audit of business continuity and resilience, which was limited, and the timing of a planned exercise to test preparedness for a cyber attack. Denise Radley, Corporate Director, Health Adults and Community, confirmed that a tabletop exercise had taken place for the corporate leadership team and would be rolled out more widely.

Anti-Money Laundering Policy and Code of Corporate Governance

Paul Rock presented the updated Anti-Money Laundering Policy, which has been reviewed by himself and legal services and will be reviewed annually. Councillor Edgar found the policy clear and easy to read, noting the council's assessment of low to moderate risk of being used as a money laundering vehicle. He inquired about the engagement with training, particularly in high-risk areas like right-to-buy transactions. Mr. Rock stated that officers involved in right-to-buy are well-briefed and supported by the fraud team, and that a targeted anti-money laundering training program will be developed over the next 12 months.

Matthew Mannion presented the Code of Corporate Governance. Following feedback from a previous meeting, the document has been revised to more accurately reflect that it describes how the council aims to achieve good governance principles, rather than stating it definitively achieves them. The revised document clarifies where information on the council's performance can be found, such as in the Annual Governance Statement. Councillor Edgar suggested spelling out abbreviations like Solace and Sipfa for public clarity. The committee agreed to approve the revised code with these minor amendments.

Work Plan and Other Business

Councillor Andrew Wood raised concerns about the number of complaints upheld against Tower Hamlets Council by the Local Government and Social Care Ombudsman, requesting a breakdown of these complaints and any lessons learned. He also alluded to issues relevant to the committee arising from an ongoing trial. The committee agreed that a future discussion on corporate complaints to the ombudsman would be beneficial. The proposed dates for future Audit Committee meetings were noted as October 7th, December 1st, and March 24th.