The Audit and Standards Committee of North East Mayoral Combined Authority Council met on Tuesday 14 July 2026. The meeting focused on the Integrated Settlement, a new funding model for established Mayoral Strategic Authorities, and reviewed the draft Statement of Accounts for the 2025/26 financial year. The committee also considered the draft Annual Governance Statement, external and internal audit reports, and the proposed work programme for the upcoming year.

Integrated Settlement

The committee received an update on the North East Mayoral Strategic Authority's (MSA) governance arrangements for the Integrated Settlement, a new funding model that combines multiple government funding streams into a single, flexible pot. This settlement, totalling £1.8 billion, aims to provide greater certainty, flexibility, and control over how funds are spent, with accountability shifting towards the delivery of outcomes. The MSA has been recognised as an 'Established Mayoral Strategic Authority', reflecting its track record of delivery and good governance.

The Integrated Settlement operates under six themes: Transport and local infrastructure; Adult skills and employment support; Housing and strategic planning; Economic development and regeneration; Environment and climate change; and Health, wellbeing and public service reform. Significant flexibilities are available, allowing for the movement of funds between programmes and pillars, with certain caps and conditions.

Accountability to government will be managed through an Integrated Settlement Outcomes Framework (ISOF), which sets out high-level outcomes and targets. Progress will be reviewed every six months at Integrated Settlement Programme Board sessions. The MSA's readiness for this settlement was assessed by PwC, which found the authority to be between building and embedded in its maturity, with clear strategic frameworks and governance. Recommendations from this assessment are being actively managed.

The committee heard that the Integrated Settlement is expected to support the delivery of the MSA's five missions, including keeping transport affordable, progressing the Leamside programme, reforming bus services, delivering the Adult Skills Programme, supporting people into work, and advancing the region's Investment Zone and offshore wind infrastructure programme.

Draft Statement of Accounts 2025/26

The committee reviewed the unaudited Statement of Accounts for the year ended 31 March 2026. Mags Scott, Director of Finance and Investment, presented the narrative report, highlighting that the authority remains in a strong financial position with a revenue budget surplus of £20.3 million, significantly exceeding the budgeted surplus of £1.4 million. This was primarily driven by higher-than-budgeted treasury management income due to higher interest rates and cash balances. This surplus is to be transferred to an earmarked reserve rather than supporting ongoing spending commitments.

Eleanor Goodman, Head of Finance, provided an overview of the core financial statements. The Comprehensive Income and Expenditure Statement reported a £24.1 million surplus on the provision of services. Usable reserves at year-end were just over £501 million, though a significant portion relates to capital grants unapplied, committed for future years. Net assets and total reserves stood at £643 million, with cash and cash equivalents closing at £34.1 million. The report noted that this was the first full financial year of operation, and prior year comparisons should be treated with caution.

The accounts also detailed expenditure by nature, with other service expenses amounting to £368 million, including significant spending on adult skills funds and skills bootcamps (£90 million), bus services (£50 million), transport delivery grants to Nexus, Durham, and Northumberland (£87 million), and the Tyne Tunnels contract (£37 million). Total income recognised was over £650 million, with government grants and contributions making up 72%.

The balance sheet indicated a healthy financial position, with net assets of £643.3 million. Usable reserves increased by £22.5 million, largely due to capital grants received in advance. The group accounts, which consolidate the MSA's statements with those of Nexus, showed total net assets of over £1.5 billion, primarily driven by transport infrastructure.

The committee engaged in detailed questioning regarding reserves, expenditure under each pillar, and the distinction between integrated settlement expenditure and business-as-usual spending. Concerns were raised about the disparity in depreciation periods for the northbound and southbound Tyne Tunnels, which was explained as being due to their different construction dates. The committee also discussed the loaning of funds to other authorities and the profit generated from such investments.

Draft Annual Governance Statement 2025/26

Daniel Adam, Senior Risk Manager, presented the draft Annual Governance Statement (AGS) for 2025/26. The AGS outlines the MSA's governance arrangements, improvements made during the year, and areas for future development. The review confirmed adequate compliance with the principles of good governance, with no significant weaknesses identified. However, areas for continued development were noted, including the formalisation of performance management arrangements, enhancement of the corporate forecasting process, and addressing quoracy issues encountered by both the Audit and Standards Committee and the Overview and Scrutiny Committee. Substantial progress has been made in enhancing the risk management programme, with a refresh of the Risk Management Framework and the embedding of new IT risk software being key future steps.

External Audit - Audit Strategy Memorandum

Naser Al-Kamir, the external auditor from Forvis Mazars LLP, presented the Audit Strategy Memorandum for the year ending 31 March 2026. The audit will be led by James Collins, with continuity provided by Naser Al-Kamir as audit manager. The audit scope includes both the North East MSA and Nexus, as Nexus is considered a material entity within the group. Significant risks identified include management override of controls, revenue recognition (specifically grant income), and the valuation of the net defined benefit pension liability. Materiality for the group consolidated financial statements was set at 2% of Gross Revenue Expenditure, and for the single entity financial statements, also at 2% of Gross Revenue Expenditure. The proposed audit fee reflects the scale fee determined by Public Sector Audit Appointments (PSAA). The auditors confirmed their independence and compliance with ethical requirements. The Value for Money (VFM) work will assess the Authority's arrangements for securing economy, efficiency, and effectiveness in its use of resources, with no identified risks of significant weaknesses at the planning stage.

Internal Audit Plan 2025/26 - Quarterly Update

Marc Oldham, Group Assurance Manager, provided an update on the 2025/26 Internal Audit Plan, confirming that all planned activity was complete, with only a few final reports awaiting management responses. The outcomes of completed engagements, including those on the Single Assurance Framework, Local Transport Plan, Health and Safety, and Information Governance, were presented. Ian Pattison, Chief Internal Auditor, then delivered the Internal Audit Annual Opinion for 2025/26, providing Reasonable Assurance that the MSA's governance, risk management, and control frameworks are adequately designed and operating effectively. He noted that while the organisation is still embedding new arrangements, the overall system is generally sound. Mr. Pattison also confirmed the independence of the internal audit function and general conformance with Global Internal Audit Standards in the UK Public Sector (GIAS-UKPS), with an action plan being developed to address areas for improvement.

Internal Audit Charter Update and Three-Year Strategic Internal Audit Plan 2026/27 to 2028/29

Ian Pattison presented the updated Internal Audit Charter and the proposed three-year Strategic Internal Audit Plan for 2026/27 to 2028/29. The Charter had minor updates to reflect the MSA's status as a Mayoral Strategic Authority and the transfer of strategic risk management responsibilities. The Plan, developed in line with GIAS-UKPS, is risk-based and focuses on areas mitigating strategic risks and core organisational functions. It includes a balance of assurance and advisory services and is designed to be flexible. The committee reviewed and approved the plan, with discussions highlighting the importance of contingency within the plan for emerging risks and the need for internal audit to provide sufficient assurance to support the Chief Internal Auditor's annual opinion.

Overview and Scrutiny Committee Annual Report 2025/26

Michael Robson presented the Overview and Scrutiny Committee's Annual Report for 2025/26. The report detailed the committee's work in scrutinising decisions, monitoring programmes, and contributing to policy development. Key areas of scrutiny included the North East Mayor's priorities, inward investment, the New Deal for North East Workers, Metro performance, the Local Transport Plan, the North East Visitor Economy, and carbon reduction targets. The report noted that no decisions were called in during the year, but quoracy issues were encountered. The committee also considered the implications of the proposed English Devolution and Community Empowerment Bill, which may introduce Local Scrutiny Committees with stronger powers. The committee was asked to note the report and consider opportunities for collaborative working with the Audit and Standards Committee.

Work Programme 2026/27

Michael Robson presented the proposed work programme for the Audit and Standards Committee for the 2026/27 municipal year. The programme includes core business items such as updates on the Integrated Settlement, draft statements of accounts, annual governance statements, and external and internal audit reports. The committee was reminded that the work programme is a working document and may be adapted as needed. The committee was asked to agree the proposed work programme and note that additional reports on ad-hoc items may be added throughout the year.

The meeting concluded with the committee agreeing to receive the proposed work programme. The next meeting was scheduled for 15 September 2026 in Gateshead.